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Uniform  Contracts  and 

Cost  Accounting  Definitions 

and  Methods 


RECOMMENDATIONS  BY 
INTERDEPARTMENTAL  CONFERENCE 

CONSISTING  OF 

DELEGATES  FROM  THE  DEPARTMENTS  OF  WAR, 

NAVY,  AND  COMMERCE,  THE  FEDERAL  TRADE 

COMMISSION,  AND  THE  COUNCIL  OF  NATIONAL 

DEFENSE 


July,  1917 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 
1917 


REPLACING 


WASHINGTON,  D.  C.,  July  31,  1917. 

The  following  recommendations  on  contracts  and  costs  have  been 
approved  for  submission  to  the  departments  of  the  Government  by 
an  interdepartmental  conference  composed  of  the  following  members: 

DEPARTMENT  OF  COMMERCE. 

Chairman:  Mr.  J.  LEE  NICHOLSON,  Chief  of  Division  of  Cost  Accounting,  Bureau 

of  Foreign  and  Domestic  Commerce. 
Mr.  BURWELL  S.  CUTLER,  Acting  Chief,  Bureau  of  Foreign  and  Domestic  Commerce. 

DEPARTMENT  OF  WAR. 

Maj.  Gen.  H.  G.  SHARPE,  Quartermaster  General. 

Col.  I.  W.  LITTELL,  Office  of  the  Quartermaster  General. 

Lieut.  Col.  H.  M.  LORD,  Office  of  the  Quartermaster  General. 

Maj.  WILLIAM  KELLY,  Office  of  Chief  Engineer. 

Lieut.  Col.  J.  E.  HOFFER,  Ordnance  Department,  Gun  Division. 

Maj.  L.  W.  BLYTH,  U.  S.  E.,  Ordnance  Department,  Cost  Accounting  Section,  Finance 

Division. 

Capt.  A.  M.  HOLCOMBE,  U.  S.  R.,  Ordnance  Department,  Small  Arms  Division. 
Capt.  A.  P.  OSBORN,  U.  S.  R.,  Ordnance  Department,  Legal  Section,  Finance  Division. 
Capt.  E.  A.  HAMILTON,  U.  S.  R.,  Ordnance  Department,  Purchase  and  Contracts 

Section,  Gun  Division. 

Capt.  E.  A.  SHEPHARD,  U.  S.  R.,  Ordnance  Department,  Small  Arms  Division. 
Capt.  A.  E.  DOWNEY,  U.  S.  R.,  Signal  Corps. 

DEPARTMENT  OF  THE  NAVY. 

Naval  Constructor  J.  H.  LINNARD,  Bureau  of  Construction  and  Repair. 

Pay  Inspector  DAVID  POTTER,  Compensation  Board. 

Paymaster  G.  P.  AULD,  Bureau  of  Supplies  and  Accounts. 

Civil  Engineer  C.  D.  THURBER,  Bureau  of  Yards  and  Docks. 

Lieut.  H.  T.  DYER,  Bureau  of  Steam  Engineering. 

Lieut.  N.  W.  PICKERING,  Bureau  of  Ordnance. 

Mr.  C.  S.  ASHDOWN,  Bureau  of  Supplies  and  Accounts. 

FEDERAL  TRADE  COMMISSION. 

Mr.  FRANCIS  WALKER. 
Mr.  R.  W.  GARDINER. 
Mr.  D.  L.  WING. 

COUNCIL  OF  NATIONAL  DEFENSE. 

Mr.  W.  S:  GEE,  Aircraft  Production  Board. 

Mr.  R.  L.  MONTGOMERY,  Aircraft  Production  Board. 

Mr.  J.  H.  HARRIS,  Legal  Committee,  Aircraft  Production  Board. 

COUNCIL  OF  NATIONAL  DEFENSE—  WAR  INDUSTRIES  BOARD. 

Mr.  J.  E.  STERRETT,  Accountancy  Committee. 
Mr.  A.  W.  TEELE,  Accountancy  Committee. 
Mr.  H.  A.  NILES,  Accountancy  Committee. 

Secretary:  Mr.  H.  P.  SEIDEMANN,  Institute  for  Government  Research. 

(2) 


UNIFORM  CONTRACTS  AND  COST  ACCOUNTING  DEFINITIONS 

AND  METHODS. 


RECOMMENDATIONS   ON   CONTRACTS. 

These  recommendations  are  intended  to  suggest  to  contracting 
officers  some  of  the  broad  legal  and  equitable  points  involved  in  war 
contracts,  and  to  express  the  preference  of  the  conference  for  a  straight 
purchase-and-sale  contract  at  a  fixed  price,  since  it  is  simpler  in 
terms,  easier  to  work  under,  and  generally  speaking,  productive  of 
better  and  quicker  results.  The  British  Government,  after  several 
years'  experience,  has  discarded  the  cost-plus  contract  plan  and 
adopted  the  straight  purchase-and-sale  contract  in  every  instance 
possible.  It  is  not  proposed  to  go  into  the  large  question  of  policy 
involved  in  attempting  to  prevent  demoralization  of  markets  by  ex- 
cessive competition.  Suffice  it  to  say,  that  the  Government  can  fur- 
nish material  and  component  parts  under  either  a  fixed-price  or  a  cost- 
plus  contract,  and  thus  protect  market  conditions  by  purchases  in 
bulk. 

Recommendations  and  brief  discussion  follow: 

I.  It  is  recommended  that,  in  every  instance  where  fair  terms  can 
be  obtained,  contracts  should  be  in  the  form  of  straight  purchase- 
and-sale  contracts  at  fixed  prices. 

In  the  determination  of  "fair  terms"  for  fixed  price  contracts,  the 
contractor,  in  so  far  as  possible,  should  be  required  to  state  the  cost 
and  other  factors  upon  which  his  price  is  based;  such  representations 
to  be  the  subject  of  investigation  by  the  contracting  officer  prior  to 
the  final  execution  of  the  contract,  and  if  found  to  be  incorrect,  the 
price  to  be  adjusted  accordingly. 

What  constitutes  "fair  terms"  can  be  arrived  at  only  by  considera- 
tion of  many  factors,  such  as : 

(1)  The  quality  and  quantity  of  the  articles  purchased. 

(2)  Whether  or  not  the  plant  is  adaptable  to  business  other  than 
war  business. 

(3)  The  duration  of  the  job  and  the  length  of  time  the  contractor's 
plant  and  capital  will  be  tied  up.     Also  the  amount  of  capital  tied 
up  in  comparison  with  the  particular  output  contracted  for. 

(4)  The  possibility  of  fluctuations  hi  material  and  labor  costs  with 
attendant  risk  to  the  contractor. 

(5)  Loss  in   commercial  business  by  taking  Government  work, 
which  must  be  given  precedence;  disarrangement  in  plant  organiza- 
tion and  labor  conditions. 


(6)  Comparison  with  prices  of  other  manufacturers,  competitive 
bidding,  etc. 

(7)  The  prosperity  of  the  trade  and  of  the  particular  contractor. 
In  certain  instances  where  the  article  is  standard,  ordered  in  hulk, 

deliverable  promptly,  a  profit  amounting  to  10  per  cent  of  costs  is 
unreasonably  high.  In  other  instances  where  the  quality  of  the  job 
is  high,  the  quantity  small,  or  where  the  job  ties  up  the  contractor's 
plant  and  capital  for  a  long  period  of  time,  or  where  the  material 
and  labor  risk  is  considerable,  or  for  other  similar  reasons,  such  10 
per  cent  profit  may  well  be  unreasonably  low. 

Again,  in  agreeing  upon  "  fair  terms  "  the  following  factors  should  be 
considered,  any  or  all  of  which  greatly  aid  the  contractor  and  should 
tend  to  lower  the  price. 

(1)  United  States  to  supply  material  or  component  parts. 

(2)  United  States  to  readjust  price  in  the  event  of  fluctuations  in 
price  of  material  or  component  parts  resulting  in  increased  costs. 

(3)  United  States  to  readjust  price  in  the  event  of  labor  disputes 
resulting  in  increased  labor  costs. 

(4)  United  States  to  make  frequent  payments  to  reimburse  the 
contractor  for  expenditures  for  material,  component  parts,  or  the 
like. 

To  skimp  fair  terms  will  inevitably  tend  to  cause  contractors  to 
lose  interest  in  production  and  disturb  general  business  conditions. 
Fair  terms  can  only  be  determined  by  consideration  of  these  general 
principles  as  well  as  the  special  factors  indicated  above  that  may 
apply  to  the  particular  production  contracted  for. 

II.  It  is  recommended  that  a  standard  form  of  straight  purchase- 
and-sale  contract  at  a  fixed  price  be  adopted  for  use  wherever 
practicable.  It  should  contain  clauses  which  will  deal  with  the 
following  subjects: 

(1)  Method  of  delivery;  storage  of  production;  shipment  to  point 
designated. 

(2)  United   States   to  pay  for  raw  material  when   delivered  to 
contractor. 

(3)  United  States  to  have  the  right  itself  to  supply  material  and 
component  parts. 

(4)  United   States   to   adjust   price   on   increased  material  costs 
above  estimated  costs. 

(5)  United  States  to  adjust  price  on  increase  in  labor  costs. 

(6)  Liquidated  damages. 

(7)  War  clause  termination. 

Although  a  straight  purchase-and-sale  contract  for  a  fixed  price 
adjusted  as  indicated  is  greatly  to  be  preferred,  nevertheless  in 
numerous  instances  the.  United  States  will  be  obliged  to  obtain  pro- 


5 

duction  by  paying  for  the  entire  cost  of  the  same  and  in  addition 
a  fair  profit  to  the  contractor.  Such  cost-plus  contract  may  be 
necessary  under  the  following  conditions : 

(1)  Where  the  production  is  novel  and  the  contractor  has  had 
no  past  experience  upon  which  to  base  a  price;  for  example,  steel 
helmets,  large  caliber  guns  and  shells  for  same,  aeroplane  motors, 
and  the  like. 

(2)  Where  the  production  involves  difficult  and  complicated  manu- 
facturing effort   subject   to   changing   plans   and  specifications,   or 
wide  fluctuations  in  material  costs;  for  example,  steel  and  wooden 
ships,  aeroplanes,  optical  glasswork,  and  the  like. 

(3)  Where  the  contractor,  though  deserving  of  confidence,  lacks 
sufficient  working  capital  and  plant  equipment  to  carry  through 
the  job. 

(4)  Engineering  or  building  jobs  for  which  the  cost-plus  contract 
has  for  many  years  been  standard. 

It  must  be  borne  in  mind  that  a  cost-plus  contract  establishes  a 
relation  of  trust  between  the  United  States  and  the  contractor,  in 
which  the  contractor  is  legally  responsible  at  all  times  to  work  in 
the  interest  of  the  United  States  and  receive  no  profit  beyond  that 
definitely  specified  in  his  contract.  For  all  excessive  costs,  hidden 
profits  in  the  form  of  depreciation,  overhead,  discounts,  and  the 
like,  the  United  States  may  refuse  to  pay,  or  if  the  contractor  has 
thereby  profited  may  sue  and  recover.  Practically,  however,  the 
interests  of  the  United  States  and  the  contractor  are  inevitably 
opposed  if  the  profit  is  based  upon  a  percentage  of  cost.  The  tempta- 
tion is  great  to  the  contractor  to  inflate  his  own  costs,  as  well  as  the 
costs  of  subcontractors,  and  the  task  of  the  United  States  is  difficult 
and  burdensome  in  checking  and  determining  proper  costs. 

III.  It  is  recommended  that  in  cost-plus  contracts  a  fixed  profit 
of  a  definite  sum  of  money  per  article  be  agreed  upon  instead  of  a 
percentage  of  cost. 

Such  fixed  profit  can  be  arrived  at  by  taking  a  percentage,  say  10 
per  cent,  of  the  estimated  cost  of  each  article  or  the  entire  job. 
In  instances  where  estimates  of  cost  are  impracticable  it  becomes 
of  paramount  importance  to  choose  a  contractor  in  whose  integrity 
the  United  States  may  have  the  fullest  confidence.  Where  a  fairly 
close  estimate  can  be  made  of  the  cost  of  the  article  or  job,  upon 
the  completion  of  the  contract,  the  actual  cost  can  be  checked  against 
the  agreed  estimate  and  the  contractor  permitted  to  share  in  the 
saving,  or  be  charged  with  part  of  the  excess  of  cost,  depending 
upon  the  outcome.  Such  an  arrangement  stimulates  the  contractor 
to  save  costs  and  time,  because  the  two  go  together.  This  cost- 
plus  adjustable  fixed-profit  contract  unquestoinably  affords  the  Gov- 


ernment  the  greatest  protection  in  cost-plus  contracts.  Great  care 
should  be  used  in  fixing  the  estimated  price,  which,  if  too  high,  may 
result  in  giving  the  contractor  a  profit  entirely  undeserved. 

IV.  It  is  recommended  that  in  cost-plus  contracts  the  fixed  profit 
agreed  on  be  subject  to  adjustment,  so  that  the  contractor  may  share 
in  the  saving  of,  or  be  charged  with  part  of  the  excess  of,  actual  cost 
over  estimated  cost. 

In  some  instances  the  contractor  may  agree  to  pay  for  all  excess 
over  a  certain  named  figure  of  cost,  and  the  advantage  to  the  United 
States  in  such  an  arrangement  is  too  obvious  for  comment. 

In  the  determination  of  costs,  direct  labor  and  direct  material  are 
easily  ascertainable ;  it  is  the  indirect  charges  to  the  job,  overhead 
and  depreciation,  that  present  difficulties.  To  contract  to  pay  a 
proper  charge  for  overhead  and  depreciation  leaves  the  door  wide 
open  for  endless  discussion,  and  it  is  suggested  that  wherever  possible 
the  amount  of  these  items  be  tentatively  fixed  in  advance,  based  on 
definite  representations  of  the  contractor  as  to  the  amount  of  fixed 
capital  assets  to  be  depreciated  and  the  estimated  overhead.  Such 
amounts  should  always  be  subject  to  revision  in  case  such  representa- 
tions prove  to  be  incorrect.  This  puts  it  up  to  the  contractor  to 
make  an  honest  representation  and  provides  ample  opportunity  to 
check  the  same.  It  is  of  the  utmost  importance  that  standardized 
forms  of  contract  as  well  as  standardized  methods  of  determining 
costs  be  applied  to  this  class  of  contracts.  Such  standardization  will 
produce  clarity  in  the  relation  between  the  contractor  and  the  United 
States  and  will  fix  precedents  of  construction  for  certain  clauses  and 
terms.  Standardization  will  also  afford  great  protection  to  the  United 
States,  not  alone  presently  in  determining  points  of  difference  but 
also  in  Court  of  Claims  suits  that  may  arise. 

V.  It  is  recommended  that  a  standard  form  of  cost-plus  contract 
be  adopted  for  use  wherever  practicable.     As  conditions  necessitate 
changes,  the  form  of  such  standard  contract  can  be  changed  to  suit. 

SUMMARY  OF  RECOMMENDATIONS.0 

I.  It  is  recommended  that  in  every  instance  where  fair  terms  can 
be  obtained,  contracts  should  be  in  the  form  of  straight  purchase- 
and-sale  contracts  at  fixed  prices. 

II.  It  is  recommended  that  a  standard  form  of  straight  purchase- 
and-sale  contract  at  a  fixed  price  be  adopted  for  use  wherever  practi- 
cable containing  special  war  clauses. 

III.  It  is  recommended  that  in  cost-plus  contracts  a  fixed  profit 
of  a  definite  sum  of  money  per  article  be  agreed  upon  instead  of  a 
percentage  of  cost. 

a  Standard  forms  of  cost-plus  and  fixed-price  contracts  will  be  found  in  the  appendix. 


IV.  It  is  recommended  that  in  cost-plus  contracts  the  fixed  profit 
agreed  on  be  subject  to  adjustment,  so  that  the  contractors  may  share 
in  the  saving  of,  or  be  charged  with  part  of  the  excess  of,  actual  cost 
over  estimated  cost. 

V.  It  is  recommended  that  a  standard  form  of  cost-plus  contract 
be  adopted  for  use  wherever  practicable. 

RECOMMENDATIONS  ON  COST-ACCOUNTING  METHODS. 

The  chief  purpose  of  these  recommendations  is  to  assist  the  pur- 
chasing departments  of  the  Government,  and  manufacturers  and 
contractors  who  are  contracting  on  a  "  cost-plus  profit "  plan,  or  on  a 
" fixed-price"  plan,  in  which  the  price  is  to  be  determined  after  an 
investigation  of  costs. 

The  recommendations  are  intended  to  be  of  a  suggestive  nature, 
and  should  be  used  wherever  the  contract  or  rules  issued  in  connection 
therewith  do  not  give  full  information  on  costs. 

It  is  hoped  that  the  information  contained  herein  may  materially 
assist  all  engaged  in  verifying  costs  for  the  Government,  and  also  point 
out  to  the  contractors  what  elements  to  use  as  costs  and  how  to 
summarize  and  present  the  costs  to  the  Government  inspectors. 

GENERAL  DEFINITION   OF  COSTS. 

It  is  recommended  that  the  following  general  definition  of  costs 
be  included  as  part  of  the  contracts,  subject  to  such  interpretation 
as  may  be  outlined  by  the  contracting  or  accounting  officers: 

Cost,  as  used  herein,  is  defined  as  follows: 

(1)  Cost    of    material    and    supplies    definitely    ascertainable    as 
entering  into  or  expended  in  the  production  of  the  articles  contracted 
for  hereunder. 

(2)  Cost  of  all  direct  labor  definitely  ascertainable  as  employed 
in  the  production  of  the  articles  contracted  for  hereunder. 

(3)  A  fair  proportion  of  overhead  expenses.     By  the  term  "  over- 
head expenses"  is  meant  the  indirect  labor  and  other  manufacturing 
expenses,  and  the  general  and  administrative  expenses  applicable  to 
and  necessary  in  connection  with  the  production  of  the  articles 
contracted  for  hereunder.     It  does  not  include  (among  other  items) 
the  following :  Interest,  rent,  advertising,  collection  expenses,  credit 
losses   and  customers'   discounts,   and  such  taxes  as  income   and 
excess  profits  taxes  imposed  by  the  United  States  Government. 
[Interest,  rent,  and  selling  expenses  will  not  be  allowed  as  part  of 
overhead  cost,  but  may  be  the  subject  of  special  compensation  when 
so  stipulated  in  the  contract.] 

Note. — Notwithstanding  the  foregoing,  charges  may  be  made 
"direct"  or  as  " overhead"  in  accordance  with  the  usual  methods  of 
cost  keeping  adopted  by  the  contractor,  provided  that  charges  are 
not  made  "direct"  in  Government  work,  when  similar  charges  for 
other  work  done  by  the  contractor  are  made  as  "overhead." 


SPECIFIC  DEFINITION   OF  COSTS. 

It  is  recommended  that  contracting  and  accounting  officers,  man- 
ufacturers, and  contractors  adopt  the  following  specific  definitions  of 
costs,  subject,  however,  to  more  detailed  definitions  in  particular 
cases  where  required. 

Indirect  Material. 

Indirect  material  consists  of  such  material  as  factory  supplies, 
which,  while  used  in  the  processes  of  manufacture,  either  do  not  enter 
into  the  product,  or  else  enter  in  such  a  way  as  not  to  be  chargeable 
conveniently  to  any  particular  article. 

Indirect  Labor. 

Labor  used  in  repairing,  handling,  trucking,  sweeping,  supervising, 
etc. ;  in  short,  any  labor  not  expended  directly  upon  the  product  may 
be  included  in  the  overhead  as  part  of  the  indirect  labor. 

Freight,  Cartage,  and  Express  (Inward). 

These  items  should  be  included  and  charged  as  part  of  the  direct 
material  costs.  When  such  treatment  is  impracticable,  they  may  be 
treated  as  part  of  the  overhead  costs. 

Experimental  Work. 

When  experimental  work  directly  necessary  in  connection  with 
Government  contracts  is  not  expressly  provided  for  in  the  contract, 
it  may  be  included  as  part  of  the  overhead  cost. 

No  portion  of  experimental  work  on  other  products  of  the  con- 
tractors should  be  included  in  the  overhead  which  is  applicable  to 
Government  contracts,  except  relatively  small  residual  expense 
which  it  is  impracticable  to  distinctly  allocate  to  any  particular 
contract. 

Defective  Work. 

Spoiled  work,  when  not  within  the  control  of  the  contractor,  and 
allowing  for  the  natural  and  ordinary  run  of  mistakes  made  by  work- 
men and  others  under  normal  conditions,  will  be  allowed  as  an  element 
of  actual  cost;  but  defective  and  spoiled  work  resulting  from  care- 
lessness, and  which  could  have  been  avoided  by  the  exercise  of 
reasonable  and  usual  care  and  diligence  by  the  contractor  or  his 
supervising  agents,  shall  be  disallowed  as  an  element  either  of  direct 
or  overhead  cost. 

A  schedule  of  all  important  items  of  defective  work  should  be  pre- 
pared, stating  the  nature  of  the  defect  and  where  and  how  it  occurred, 
together  with  its  disposition  and  salvage  value. 


9 

Taxes. 

Taxes,  excepting  Federal  taxes  such  as  income  and  excess  profits 
taxes,  accruing  during  such  time  as  the  contract  may  be  in  process 
may  be  included  as  part  of  the  overhead. 

Liability  Insurance. 

Accrued  liability  insurance  insofar  as  it  covers  employees  working 
on  Government  contracts  may  be  included  as  part  of  the  overhead. 
Such  accruals  may  cover  premiums  payable  to  insurance  companies, 
State  compensation  boards,  or  premiums  under  independent  insurance 
plans  not  materially  exceeeding  in  cost  those  of  insurance  companies 
or  State  compensation  boards. 

Packing  and  Packing  Supplies. 

These  items  may  include  boxes,  lumber,  nails,  containers,  strapping, 
and  miscellaneous  packing  supplies,  and  also  the  packing  labor  which 
is  incurred,  and  these  items  may  be  included  as  part  of  the  overhead. 

Scrap  and  Waste. 

Wherever  the  scrap  and  waste  and  containers  on  Government  work 
have  a  salvage  value,  this  value  should  either  be  deducted  from  the 
material  cost  or  from  the  overhead. 

Administrative  Expenses. 

The  segregation  of  administrative  expenses  as  a  distinct  class  is 
sometimes  a  matter  of  convenience.  In  the  majority  of  cases  the 
time  of  the  administrative  force  is  spent  in  supervising  the  selling 
organization,. in  solving  problems  of  production,  and  in  looking  after 
the  finances  of  the  business.  Therefore  administrative  expense  is 
partly  a  production  cost,  and  partly  a  selling  cost. 

Only  that  portion  of  the  administrative  expense  which  is  applicable 
to  Government  work  may  be  included  as  a  part  of  the  overhead  costs. 

Salaries. 

Excessive  salaries  or  other  excessive  compensation  shall  not  be 
allowed.  In  order  to  form  a  basis  for  passing  on  this  matter,  an 
amount  of  salary  or  other  compensation  paid  for  the  three  years 
prior  to  the  war  shall  be  considered  as  one  of  the  factors  in  determining 
the  amount  to  be  allowed. 

Employees'  Welfare. 

All  of  the  following  items  are  allowed  as  overhead  expense: 

(1)  Wages  paid  employees  while  absent  on  account  of  sickness. 

(2)  Expenses  of  operation  and  maintenance  of  plant  hospitals, 
also  all  medicine  and  supplies  for  first  aid  to  the  injured,  expenditures 

5347°— 17 2 


10 

for  hospitals  and  other  organizations  to  cover  definite  benefits  to 
employees. 

(3)  Payments  according  to  a  definite  pension  plan  to  disabled  and 
veteran  employees  or  their  families,  and  not  included  in  liability 
insurance  or  other  items  mentioned  herein. 

(4)  Net  results  of  operating  the  contractor's  restaurants. 

(5)  Vacation  allowances  to  wage  earners. 

(6)  Expenses  in  connection  with  employees'  welfare,  such  as  group 
insurance,  conducting  club  rooms,  rest  rooms,  reading  rooms,  and 
educational  classes. 

Depreciation.0 

In  determining  depreciation  it  is  desirable  (1)  to  agree  on  a  proper 
rate,  taking  into  consideration  the  use  of  the  plant  for  purposes  other 
than  war  orders,  (2)  to  have  the  contractor  make  a  representation  as 
to  his  actual  cash  investment  in  plant,  machinery,  tools,  fixtures,  and 
the  like,  subject  to  investigation  as  to  correctness,  and  to  apply  the 
rate  agreed  upon  to  the  sum  fixed  or  corrected,  as  the  case  may  be. 

The  rate  of  depreciation  depends  upon  many  different  and  variable 
factors,  some  of  the  most  important  of  which  are  as  follows : 

(a)  Nature  and  construction  of  buildings  and  equipment,  together 
with  their  condition. 

(6)  Deterioration  of  plant  in  general  and  of  machinery  in  particu- 
lar, due  to  wear  and  tear. 

(c)  Amount  spent  for   maintenance   in   the  way  of   repairs  and 
renewals. 

(d)  The  invention  of  new  methods  or  new  machines  which  may 
or  may  not  entirely  replace  the  old  ones. 

(e)  Permanency  of  business,  and  likelihood  of  increase  or  decrease 
in  the  same. 

(/)  Amounts  previously  written  off  for  depreciation. 

(g)  There  are  many  additional  factors,  such  as  amortization,  pecu- 
liar and  excessive  uses  of  machines,  rate  of  production,  idleness  of 
plant,  etc.,  all  of  which  enter  into  the  problem. 

Depletion. 

In  entering  into  contracts  for  raw  materials,  based  on  cost  plus 
profit,  consideration  should  be  given  the  item  of  depletion.  The 
Interdepartmental  Cost  Conference  is  not  at  the  present  tune  ready 
to  make  any  recommendation  concerning  this  subject. 

a  Regulation  No.  39,  issued  October  24,  1916,  as  Treasury  Decision  No.  2384  (internal  revenue),  inter- 
preting depreciation  as  stated  in  the  munitions  tax  law  of  September  8, 1916,  will  be  found  in  Appendix  A. 


11 

METHOD  OF  COLLATING   COST  DATA. 

It  is  recommended  that  the  contractor  use  the  following  methods,  in 
so  far  as  practicable,  in  presenting  his  final  cost  figures  on  materials, 
lahor,  and  overhead. 

Method  for  Ascertaining  Material  Cost. 

The  following  information  should  be  compiled  to  support  the 
material  costs: 

(1)  Summary  showing  the  totals  of  the  cost  value  of  the  various 
kinds  of  material  used,  and  supported  by  original  records,  such  as 
material  reports  and  requisitions,  bills  of  materials,  specifications, 
and  production  reports. 

(2)  In  determining  the  material  cost,  the  actual  prices  paid  should 
be  used;  where  this  is  not  practicable  fair  average  prices  may  be  used. 

(3)  In   ascertaining  the  material   cost,    all   discounts  should  be 
deducted  from  the  purchase  price. 

(4)  Duties,  import  expense,  freight,  cartage  and  express  inward 
may  be  added  to  the  purchase  price  of  the  material  for  the  purpose 
of  ascertaining  the  material  cost,  or  those  items  may  be  included  as 
forming  a  part  of  the  overhead   expense  items  as  heretofore  men- 
tioned. 

Method  for  Ascertaining  Direct  Labor  Cost. 

The  following  information  should  be  compiled  to  support-  the 
direct  labor  costs : 

(1)  Summary  showing  the  totals  of  the  direct  labor  cost  and  sup- 
ported by  original  records  showing  the  operations,  time,  and  amount 
of  wages  paid  to  the  employees  engaged  upon  Government  work. 
These  original  records  may  take  the  form  of  daily,  weekly,  or  monthly 
tune  reports  or  other  pay-roll  records. 

(2)  Wage-rate  records  should  be  prepared,  dated,  and  any  changes 
therein  noted,  with  the  date  thereof. 

(3)  The  wage  rate  used  in  calculating  the  productive  labor  costs 
should  not  be  higher  than  the  market  prices  for  the  respective  classes 
of  work. 

(4)  All  labor  costs  should  be  represented  by  wages,  computed  as 
above,  and  actually  paid  to  the  respective  employees.    These  wages 
must  be  in  agreement  with  the  pay-roll  records. 

Method  for  Ascertaining  Overhead  Cost. 

The  following  information  should  be  compiled  to  support  the 
overhead  costs: 

(1)  Final  summary  showing  the  totals  of  overhead  by  productive 
departments,  these  totals  being  obtained  from  paragraph  2, 


12 

(2)  Summaries  showing  the  overhead  in  each  productive  depart- 
ment, giving  the  amount  distributed  and  applicable  to  Government 
work.     These  summaries  will  include  all  overhead  charged  to  the 
productive  departments. 

(3)  Summaries  of    the  detailed  items    composing  the  overhead 
directly  charged  to  each  productive  department  where  Government 
work  is  done. 

(4)  Summaries  showing  the  detailed  items  composing  the  overhead 
directly  charged  to  each  nonproductive  department  and  the  distribu- 
tion of  these  items. 

-(5)  Summaries  showing  the  detailed  items  composing  the  general 
operating  expenses  and  the  distribution  of  these  items. 

(6)  The  methods  or  bases  used  in  the  distribution  of  the  overhead 
should   be   specified.     This   would   include   the   following:  (a)  The 
method  or  basis  used  for  applying  the  productive  department  over- 
head to  the  job,  order,  article,  or  contract;  (6)  the  method  or  basis 
used  for  distributing  the  nonproductive  department  overhead;  (c) 
the  method  or  basis  used  for  distributing  the  general  operating 
expenses. 

(7)  When  mentioning  the  methods  which  are  used,  the  various 
percentages  or  rates  of  overhead  used  should  be  specified.    Schedules 
should  be  prepared  showing  how  the  various  overhead  percentages 
and  rates  were  ascertained. 

Principles  of  Distribution  of  Overhead  Expenses. 

(1 )  If  a  cost  system  is  in  use  and  the  method  of  distributing  the  over- 
head to  departments  and  product  is  one  that  is  based  on  well-defined 
principles,  the  method  of  distribution  may  be  accepted. 

(2)  The  period  of  time  covered  by  the  distribution  of  the  overhead 
should  be  in  accordance  with  the  cost  period,  which  should  not  be 
more  than  five  weeks.     If  a  cost  system  is  not  in  use,  the  distribution 
of  costs  should  be  made  at  least  monthly,  according  to  the  calendar 
month  if  possible. 

(3)  Standard  methods  of  distribution  of  overhead  are  first,  direct 
labor  cost;  second,  direct  labor  hours;  third,  machine  hours. 

First.  If  the  wages  in  an  individual  operating  department  are 
fairly  uniform,  it  will  not  make  any  particular  difference  whether  the 
overhead  is  distributed  on  labor  costs  or  labor  hours.  If,  however, 
there  is  high  and  low  priced  labor  in  an  operating  department,  it  is 
more  accurate  to  use  direct  labor  hours,  especially  if  both  Government 
and  commercial  work  is  being  handled  in  that  department 

Second.  The  method  of  distribution  of  overhead  by  the  direct  labor 
hours  is,  in  the  majority  of  cases,  the  most  accurate  method. 


13 

Third.  As  between  direct  labor  distribution  and  machine  hour  dis- 
tribution, the  guiding  principle  is  that  wherever  the  work  depends 
upon  the  skill  of  the  workman,  and  the  machine  or  implements  that 
he  uses  are  merely  his  tools,  the  direct  labor  hour  or  cost  is  the  logical 
method  to  use.  If,  however,  automatic  machines  are  used,  or  in 
cases  where  one  man  may  run  two  or  more  machines,  the  machine  rate 
is  the  logical  one  to  use. 

(4)  Where  cost  systems  are  not  in  use,  it  is  important  to  advise 
the  contractors  of  the  most  equitable  basis  for  the  distribution  of  the 
overhead  work  before  work  upon  Government  contracts  is  started. 


APPENDIXES. 

APPENDIX  A.— DEPRECIATION    AS   DEFINED    IN  TREASURY 
DECISION  NO.  2384. 

Regulation  No.  39,  issued  October  24,  1916,  as  Treasury  Decision 
No.  2384  (internal  revenue),  interpreting  depreciation  as  stated  in 
the  munitions  tax  law  of  September  8,  1916,  contains  the  following: 

ART.  20.  The  deduction  authorized  on  account  of  depreciation  relates  to  the  loss 
due  to  use,  wear,  and  tear  of  physical  property,  owned  and  used  by  the  manufacturer, 
but  which  is  not  specially  designed  or  installed  for  the  purpose  of  manufacturing 
munitions  or  parts  thereof,  and  which,  without  material  alteration  and  change,  may 
be  used  in  connection  with  any  other  business  in  which  the  person  is  or  may  be  here- 


The  annual  deduction  on  this  account  will  be  a  reasonable  allowance  determined 
upon  the  basis  of  the  cost  and  probable  number  of  years  constituting  the  life  of  the 
property. 

If  the  same  building  and  machinery  or  other  equipment  are  used  coincidentally 
for  purposes  other  than  the  manufacture  of  munitions  or  parts  thereof,  then  the  amount 
deductible  from  the  gross  income  returned  for  the  purpose  of  this  title  on  account  of 
depreciation  will  be  apportioned  in  accordance  with  the  rule  hereinbefore  set  out  for 
apportioning  running  expenses,  and  the  deduction  from  the  gross  income  contem- 
plated by  this  title  will  be  made  accordingly. 

ART.  21.  Section  302  of  this  title  authorizes  a  deduction  to  meet  the  conditions 
peculiar  to  each  concern,  and  has  for  its  purpose  the  amortization  of  the  values  of 
buildings  and  machinery  constituting  special  plants,  which  will,  except  for  salvage, 
have  no  substantial  value  to  the  manufacturer  when  the  contracts  executed  or  to  be 
executed  for  the  manufacture  of  munitions  or  parts  thereof  have  been  fully  performed. 

The  deduction  authorized  on  this  account  relates  to  property  (buildings,  machinery, 
and  equipment)  specially  constructed  or  installed  for  use  in  the  manufacture  of 
munitions  or  parts  thereof,  and  which,  when  no  longer  useful  for  this  purpose,  can  not, 
without  material  alteration  or  change,  if  at  all,  be  used  for  any  other  purpose,  the 
life  of  which  property  is  substantially  coincident  with  the  life  of  the  contracts. 

The  annual  allowance  to  be  deducted  on  this  account  will  be  determined  by 
estimating  the  probable  number  of  years  the  property  will  be  used  in  the  manufacture 
of  munitions  or  parts,  and  by  dividing  the  cost  of  such  property,  less  estimated  salvage, 
by  such  probable  number  of  years.  The  quotient  thus  obtained  will  measure  the 
amount  to  be  deducted  each  year  on  account  of  amortization,  until  the  cost  of  the  prop- 
erty has  been  extinguished.  Or  the  cost  of  the  property  may  be  amortized  on  the 
basis  of  the  quantity  of  munitions  or  parts  thereof  manufactured  under  contracts  in 
connection  with  the  fulfillment  of  which  the  buildings  and  machinery  or  equipment 
were  specially  constructed  or  installed. 

Neither  the  depreciation  nor  the  amortization  deduction  allowable  in  the  return 
made  for  the  purpose  of  this  title  will  relate  to  property  used  in  connection  with  any 
other  business  carried  on  by  the  manufacturer.  Amortization  applies  only  and  par- 
ticularly to  those  special  plants  and  equipment  whose  life  and  value,  except  salvage, 
will  terminate  with  the  end  of  the  business  for  which  they  were  erected  and  equipped. 
It  is  to  be  differentiated  from  depreciation  in  that  depreciation  relates  to  property 
whose  life  and  value  is  not  dependent  upon  or  materially  affected  by  its  use  in  the 
manufacture  of  munitions  or  parts  thereof. 

(15) 


APPENDIX  B.— STANDARD  FORM  FOR  COST  AND 
PROFIT  CONTRACT.0 

UNITED  STATES  OF  AMERICA 

DEPARTMENT 

ArtirirB  af  Agrr rm*nt  entered  into  this. 

.  between  . 


of  the  first  part  (hereinafter  called  the  contractor),  and 

the  UNITED  STATES  OF  AMERICA,  by 

(here  insert  name  of  contracting  officer)  __.. 

Department    (hereinafter  called   the  contracting  officer), 

acting  by  authority  of  the 

(here  insert  title  of  head  of  department) ,  and  under  the  di- 
rection of  the  Secretary  of ,  of  the  second 

part; 

WITNESS: 

WHEREAS  war  exists  between  the  United  States  and 
Germany  constituting  a  national  emergency, 

Now,  THEREFORE,  under  the  provisions  of  Section  120 
of  an  Act  of  Congress  relating  to  National  Defense,  ap- 
proved June  3,  1916,  and  pursuant  to  all  other  laws  of 
the  United  States  and  executive  orders  of  the  President 
of  the  United  States  or  heads  of  its  departments  under 
which  the  requirements  of  advertisement  for  proposals 
are  dispensed  with,  and  contracts  in  the  form  hereof 
duly  authorized  and  IN  CONSIDERATION  of  the  mutual  agree- 
ments herein  contained,  the  said  parties  have  agreed  and 
by  these  presents  do  agree  to  and  with  each  other  as 
follows,  viz: 

ARTICLE  I.    The  contractor  agrees  to  make  for  the  fotArticl  es  coatracted 
United   States  the  following  articles    (insert  name   and 
number  of  articles  contracted  for) , 

hereinafter   called    "the   articles,"    each   of   the   articles 
being  referred  to  as  "unit,"  in  accordance  with  the  draw- 

o  This  form  has  not  been  submitted  to  the  Comptroller  of  the  Treasury  for  approval 
and  is  intended  solely  as  a  guide  to  contracting  officers  and  others  in  preparing  contracts. 
Contracts,  after  being  drawn,  may  be  submitted  to  the  comptroller  for  approval,  if  the 
contracting  agents  think  such  action  necessary. 

5347°— 17 3  (17) 


18 

ings  and  specifications  hereto  attached  marked  Schedule  I, 
and  made  a  part  hereof,  together  with  such  changes  as 
may  be  made  therein  as  hereinafter  provided,  and  the 
United  States  agrees  to  pay  therefor,  all  upon  the  terms 
and  conditions  in  this  contract  set  forth. 

General  provisions.  ARTICLE  II.  Time  being  of  the  essence,  the  contractor 
agrees  to  provide,  with  the  utmost  dispatch,  at  the  best 
prices  obtainable,  (1)  such  administrative,  purchasing, 
manufacturing  and  accounting  organization,  (2)  such 
plant,  machinery,  tools  and  other  facilities,  including 
such  facilities  in  addition  to  the  contractor's  normal 
facilities  (hereinafter  called  increased  facilities),  [Note: 
This  provision  is  only  applicable  in  instances  where  the 
contractor  is  doing  work  requiring  a  special  outlay  for 
which  the  United  States  will  pay  as  part  of  the  bargain] 
and  (3)  such  labor,  material,  supplies  and  the  like,  as 
may  be  necessary  to  enable  the  articles  to  be  made 
and  all  the  requirements  of  this  contract,  including  the 
requirements  in  respect  of  the  storage  and  delivery  of 
the  articles  contemplated  herein  to  be  complied  with 
in  manner  satisfactory  to  the  contracting  officer.  The 
contractor  in  dealing  with  parties  other  than  the  United 
States  shall  make  all  subcontracts,  purchases,  payments 
and  other  arrangements  for  performing  this  contract 
in  his  own  name  and  for  his  account,  and  shall  not  bind, 
or  purport  to  bind  the  United  States,  except  as  the  con- 
tracting officer  shall  otherwise  in  writing  direct.  The 
contractor  shall,  unless  otherwise  directed  by  the  con- 
tracting officer,  insert  in  every  contract  made  for  increased 
facilities,  material,  supplies  and  the  like,  relating  to  the 
performance  of  this  contract,  a  provision  that  such  con- 
tract may  be  assigned  by  the  contractor,  and  that  such 
contract  relates  to  a  main  contract  between  the  con- 
tractor and  the  United  States.  All  property  paid  for  by 
the  United  States  shall  upon  such  payment  become  the 
property  of  the  United  States,  shall  be  kept  separate  and 
apart  from  property  belonging  to  the  contractor,  and 
shall  be  so  marked  as  the  contracting  officer  may  from 
time  to  time  direct.  The  contractor  hereby  waives  and 
releases  all  lien  or  right  of  lien  now  existing  or  which  may 
hereafter  arise  for  work  or  labor  performed  or  materials 
furnished  or  for  any  other  reason  or  cause  under  this 
contract,  under  any  lien  laws,  State  or  Federal,  upon  the 
articles  or  any  component  parts,  material,  supplies,  or 


19 

other  property  coming  into  its  possession  which  it  is  con- 
templated shall  presently  or  ultimately  become  the  prop- 
erty of  the  United  States.  The  United  States  may,  at  its 
option,  from  time  to  time  furnish  the  contractor  with  any 
increased  facilities,  material,  supplies  and  the  like  or 
other  property,  relating  to  the  performance  of  this  con- 
tract, provided,  however,  that  the  contractor's  under- 
takings for  the  same,  made  in  good  faith,  are  not  thereby 
interfered  with. 

ARTICLE    III.  The    contractor    agrees    to    deliver    the    Deliveries- 
articles  according  to  the  f ollowing  schedule : 
(Insert  schedules  of  deliveries) 

Time  being  of  the  essence,  the  contractor  will,  if  possible 
and  if  requested  so  to  do  by  the  contracting  officer,  an- 
ticipate the  foregoing  schedule,  and  agrees  to  give  the 
performance  of  this  contract  precedence  over  all  work 
for  parties  other  than  the  United  States.  The  contrac- 
tor shall  not  be  responsible  for  delays  directly  caused  by 
acts  of  war,  riot,  incendiarism  and  the  like,  or  by  strike, 
fire,  storm  and  the  like,  or  by  any  act  of  the  United  States 
or  other  cause  beyond  the  control  or  without  the  fault  of 
the  contractor,  without,  however,  relieving  the  contractor 
from  using  his  best  efforts  to  remove  such  cause  and  con- 
tinuing performance  with  the  utmost  dispatch  whenever 
such  cause  is  removed.  The  contractor  from  time  to  time 
will,  and  at  any  time  upon  the  request  of  the  contracting 
officer  shall,  furnish  to  the  contracting  officer  statements 
and  reports  upon  the  progress  of  the  work,  and  any  and 
all  factors  relating  to  the  delivery  of  the  articles. 

Deliveries  of  the  articles,  suitably  packed,  boxed  and 
marked  as  directed  by  the  contracting  officer,  shall  be 
made  to  the  contracting  officer  at  the  plant  of  the  con- 
tractor at _ , 

but  the  contractor,  at  the  cost  and  risk  of  the  United 
States,  shall  store  the  articles  for  so  long  a  period,  not 
exceeding  one  year,  as  the  contracting  officer  shall  request, 
providing  such  space  and  buildings  as  may  be  desirable 
for  adequate  and  safe  storage,  and  in  determining  such 
cost,  the  rental  for  the  use  of  land  and  buildings  of  the 
contractor  shall  be  determined  as  hereinafter  in  Article 
X  hereof  provided;  and  also  at  the  cost  of  the  United 
States  the  contractor  shall  ship  the  articles  to  any  point 
in  the  United  States,  making  all  arrangements  for  trans- 
portation, all  according  to  the  instructions  of  the  contract- 
nig  officer. 


20 

payments.  ARTICLE  IV.  The  United  States  will  make  the  follow- 

ing payments  to  the  contractor: 

(1)  The  sum  of   $ (Insert  profit  agreed 

upon)  for  each  unit  delivered,  as  a  fixed  profit,  of  which 

$ shall  be  paid  upon  the  proper  certificate 

of  the  contracting  officer  showing  delivery  and  accept- 
ance of  units  during  the  performance  of   the  contract, 
[Note:   Where   units    are  in  large  quantity,  fixed  profit 
should  be  paid  each  month  for  deliveries  of  units  during 
the  preceding  month]  and  the  remainder  upon  the  com- 
pletion of  the  contract.     Such  fixed  profit  is  subject  to 
addition  or  deduction  as  hereinafter  provided. 

(2)  The   United   States   shall   add   to   fixed  profit,    or 
deduct  from  fixed  profit,  as  the  case  may  be,  under  the 
following  adjustments: 

(a)  The  estimated  cost  of  each  unit  upon  which  the'  fixed 

profit  is  based  is  $ ,  made  up  of  the  following 

itemization: 

Prom  adjustment.  (Insert  and  separately  number  each  item  of  estimated 
cost  such  as  material,  component  parts,  packing,  etc.,  over- 
head expenses,  depreciation,  etc.) 

Immediately  upon  the  completion  of  the  contract,  Gi- 
lts termination  by  the  United  States  for  reasons  other 
than  default  of  the  contractor,  the  entire  actual  cost  of 
conversion  as  estimated  per  unit  in  the  above  items  num- 
bered    (insert  numbers  relating  to  con- 
version cost)  exclusive  of  all  costs  which  may  be  fixed  and 
agreed  upon  in  the  foregoing  and  all  material,  supplies  and 
the  like  paid  for  by  the  United  States,  shall  be  determined 
by  the  contracting  officer  in  accordance  with  the  provisions 
of  this  contract.  If  the  actual  cost  of  conversion  shall  be 
found  to  exceed  the  estimate,  the  United  States  shall 
deduct  from  the  payments  to  be  made  to  the  contractor 

on  account  of  fixed  profit %  of  such  difference 

between  actual  and  estimated  cost,  provided  always  that 
the  fixed  profit  after  such  adjustment  shall  not  be  less 

than  $ __  per  unit  delivered.     If,  however, 

the  actual  cost  of  conversion  shall  be  found  to  be  less  than 
the  estimate,  the  United  States  shall  immediately  pay  the 
contractor,  in  addition  to  the  fixed  profit  previously  paid, 

all  fixed  profit  withheld  and  %  of  such 

difference  between  the  actual  and  estimated  cost,  pro- 
vided always  that  the  fixed  profit  after  such  addition 

shall  not  be  more  than  & per  unit  delivered. 

The    additional   cost   of   conversion   necessitated   by   the 


21 

failure  of  component  parts  furnished  by  the  United  States 
shall  not  be  included  in  the  determination  of  actual  cost 
for  the  purposes  of  this  subdivision  (a).  [Note:  This  last 
sentence  refers  to  instances  where  the  United  States  pro- 
poses to  furnish  component  parts  of  the  article.] 

[Note:  In  view  of  the  fact  that  in  a  cost  contract  the 
United  States  pays  for  all  costs  irrespective  of  variations 
in  the  price  of  material  and  the  like,  the  only  variations 
for  which  the  contractor  shall  receive  credit  or  be  charged 
under  this  paragraph  must  be  those  arising  from  the  con- 
version of  material  and  component  parts  into  the  finished 
article.  This  subdivision  (a)  shall  be  omitted  if  the  pro- 
vision for  the  contractor  to  share  in  a  saving  on  estimated 
cost,  and  bear  part  of  the  excess  over  estimated  cost  is  no 
part  of  the  bargain.] 

(6)  In  the  event  that  the  contractor  shall  fail  to  deliver  Li<uidated  damages, 
the  articles  according  to  the  schedule  of  deliveries  provided 
for  herein  as  complete  articles,  sets,  or  lots,  as  the  case 
may  be,  the  contractor  shall  be  in  default  under  this  con- 
tract, which  default  shall  continue  until  such  time  as  such 
articles,  sets,  or  lots  shall  be  delivered.  When  one  or 
more  parts  of  an  article  or  articles  of  a  set  or  lot  are  not 
delivered  by  the  proper  date,  the  complete  article  or  the 
entire  set  or  lot  shall  be  classed  as  undelivered  for  the 
purpose  of  computing  liquidated  damages.  For  each  day 
during  which  the  contractor  shall  be  in  default  on  account 
of  such  deliveries,  the  United  States  shall  deduct  from 
the  payments  to  be  made  to  the  contractor  on  account  of 
fixed  profit  adjusted  as  in  subdivision  (a)  of  this  para- 
graph (2) of per  cent  of  the 

amount  named  as  fixed  profit  in  paragraph  (1)  of  this 
Article  IV  for  each  article  or  set  or  lots  of  articles,  with 
respect  to  which  the  contractor  shall  be  in  default.  The 
United  States  shall  also  deduct  from  the  payments  to  be 
made  to  the  contractor  on  account  of  fixed  profit  adjusted 
as  aforesaid  such  additional  cost  of  inspection  and  super- 
intendence, if  any,  as  may  be  caused  by  any  default  of  the 
contractor  in  the  delivery  of  articles  or  the  completion  of 
component  parts.  Provided,  however,  that  in  no  event 
shall  such  deductions,  or  either  of  them,  cause  the  fixed 
profit  adjusted  as  hereinbefore  provided  and  as  finally 

paid  to  the  contractor  to  be  less  than  the  sum  of  $ 

per  unit.  It  is  understood  and  agreed  that  if  the  United 
States  shall  elect  to  terminate  this  contract  as  provided  in 
Article  IX  hereof,  the  aforesaid  deductions  shall  be  made 


22 

only  for  each  day  prior  to  such  termination,  and  that  un- 
less the  United  States  shall  so  terminate  this  contract 
the  contractor  shall  proceed  to  complete  the  delivery  of 
articles  with  the  utmost  dispatch,  and  that  such  deduc- 
tion of  __ of per  cent 

of  fixed  profit  for  each  day  of  default  is  not  imposed  as 
a  penalty,  but  as  a  liquidation  of  actual  damages  which 
according  to  a  careful  and  reasonable  estimate  the  United 
States  will  sustain  if  deprived  of  the  use  of  the  articles, 
sets,  or  lots  during  the  period  for  which  deduction  is  made. 
Provided,  however,  that  the  contracting  officer  may  extend 
the  time  for  delivery  of  any  articles  or  completion  of  any 
component  parts  for  a  period  equal  to  any  delay  or  delays 
caused  in  his  opinion  by  any  act  of  the  United  States,  or 
by  acts  of  war,  riot,  incendiarism  and  the  like,  or  by  strike, 
fire,  storm  and  the  like,  or  other  cause  beyond  the  control 
and  without  the  fault  of  the  contractor  occurring  during 
such  time  as  the  contractor  may  not  be  in  default  or  before 
the  expiration  of  any  previous  extension  of  the  time  for 
delivery  of  any  articles,  and  no  deduction  from  fixed  profit 
shall  be  made  for  delay  directly  arising  from  any  such  cause. 
[Note:  Subdivision  (b)  of  paragraph  (2)  should  be  omitted 
where  liquidated  damages  are  no  part  of  the  bargain.] 

(3)  The    cost   of   increased   facilities    as    allowed    and 
determined  in  accordance  with  Article  V  hereof  shall  be 
paid  from  time  to  time  upon  the  proper  certificate  of  the 
contracting  officer  either  to,  or  upon  the  order  of  the 
contractor,  against  the  delivery  of  increased  facilities  or 
any  part  thereof  to  the  contractor,  or  in  the  event  that 
such  increased  facilities  are  furnished  by  the  contractor, 
upon  delivery  to  the  contracting  officer  by  the  contractor. 

[Note:  Payments  for  the  purchase  or  rental  of  land  and 
the  erection  of  buildings  for  use  by  the  contractor  should 
be  the  subject  of  special  clauses.] 

(4)  The   cost   of   the   articles   during   each   month   as 
allowed   and   determined  in   accordance  with  Article   V 
hereof  shall  be  paid  in  the  following  month  (as  early  in 
the  month  as  possible)  upon  the  proper  certificate  of  the 
contracting  officer. 

In  order  that  payments  may  be  made  promptly,  the 
United  States  may  attach  a  paymaster  in  the  main  office 
or  plant  of  the  contractor,  and  shall  so  do  if  payments  are 
at  any  time  unreasonably  delayed.  The  United  States  may, 
if  at  any  time  authority  therefor  exist,  and  the  contract- 
ing officer  shall  deem  such  advisable,  make  other  and  more 


23 

frequent  payments,  and  to  the  end  that  sufficient  money 
may  be  retained  by  the  United  States  to  cover  any  deduc- 
tions from  fixed  profit,  liquidated  damages,  if  any,  or  differ- 
ences as  to  cost  payments,  the  contracting  officer  may  with- 
hold such  percentage  of  fixed  profit  and  such  part  of  the 
payment  of  final  costs  as  may  be  sufficient  for  such  purpose. 
No  payments  by  the  United  States  shall  act  to  prevent  the 
United  States  from  later  disputing  the  valiolity  thereof 
under  this  contract. 

ARTICLE  V.  The   allowances  of  the  cost  of  increased    Allowance  of  costs, 
facilities  and  of  the  articles,  for  which  the  United  States 
shall  pay  and  the  elements  included  in  the  term  ''costs" 
as  used  in  this  contract  are  as  follows : 

(1)  Cost  of  material  and  supplies  definitely  ascertainable 
as  entering  into  or  expended  in  the  production  of  the  articles 
contracted  for  hereunder. 

(2)  Cost  of  all  direct  labor  definitely  ascertainable  as 
employed  in  the  production  of  the  articles  contracted  for 
hereunder. 

(3)  A  fair  proportion  of  overhead  expenses.     By  the 
term  ''overhead  expenses*'  is  meant  the  indirect  labor  and 
other  manufacturing  expenses,  and  the  general  and  adminis- 
trative expenses  applicable  to  and  necessary  in  connection 
with  the  production  of  the  articles  contracted  for  here- 
under.    It  does  not  include  (among  other  items)  the  fol- 
lowing:   Interest,   rent,    advertising,   collection   expenses, 
credit  losses,  and  customers'  discounts,  such  taxes  as  in- 
come and  excess  profits  taxes  imposed  by  the  United  States 
Government.     (Interest,  rent,  and  selling  expenses  will  not 
be  allowed  as  part  of  overhead  cost,  but  may  be  the  subject 
of  special  compensation  when  so  stipulated  in  the  contract.) 

[Note:  Notwithstanding  the  foregoing,  charges  may  be 
made  "direct"  or  as  "overhead,"  in  accordance  with  the 
usual  methods  of  cost  keeping  adopted  by  the  contractor, 
provided  that  charges  are  not  made  "direct"  in  Govern- 
ment work,  when  similar  charges  for  other  work  done  by  the 
contractor  are  made  as  ''overhead."] 

[Note:  If  the  bargain  is  that  the  contractor  shall  not  in 
any  event  exceed  a  certain  fixed  sum  for  his  costs,  a  pro- 
vision to  such  effect  should  be  inserted  here,  i.  e.,  "Any- 
thing in  this  contract  to  the  contrary,  notwithstanding,  the 
contractor  agrees  that  the  cost  of  the  articles  to  be  allowed 
pursuant  to  this  Article  V  hereof  shall  not  exceed  the 
sum  of  $ and  agrees  to  himself  pay  without 


24 

claim  of  reimbursement  from  the  United  States  all  costs 
in  excess  of  such  sum."] 

[Note:  The  allowance  of  cost  will  probably  vary.  This 
is  an  accounting  problem  depending  upon  the  method  of 
keeping  costs  followed  by  the  particular  manufacturer. 
A  separate  schedule  of  costs  allowed  should  be  attached. 
In  every  instance  possible  overhead  and  depreciation  sliould 
be  put  down  at  a  fixed  amount,  subject  to  independent  in- 
vestigation during  the  performance  of  the  contract,  and  re- 
vision. In  determining  depreciation  it  is  desirable  (1) 
to  agree  on  a  proper  rate,  taking  into  consideration  the  use 
of  the  plant  for  purposes  other  than  war  orders,  (2)  to  have 
the  contractor  make  a  representation  as  to  his  actual  cash 
investment  in  plant,  machinery,  tools,  fixtures,  and  the  like, 
subject  to  investigation  as  to  correctness,  and  to  apply  the 
rate  agreed  upon  to  the  sum  fixed  or  corrected,  as  the  case 
may  be.] 

In  addition  thereto  further  allowances  of  cost  from 
time  to  time  may  be  made  by  the  contracting  officer. 

The  United  States  shall  not  be  obligated  to  reimburse  the 
contractor  for  any  expenditures  relating  to  the  performance 
of  this  contract  unless  the  approval  of  the  contracting 
officer  shall  be  obtained  before  such  expenditures  are  made 
or  contracted  for. 

The  determination  of  the  actual  costs  as  herein  allowed 
shall  be  made  by  the  contracting  officer,  who  shall  from 
time  to  time  instruct  the  contractor  as  to  (1)  the 
methods  to  be  followed  in  determining  actual  costs  [Note: 
This  provision  is  essential  where  the  contractor's  system 
of  keeping  costs  is  fundamentally  at  variance  with  the 
standards  of  the  cost  accounting  section, De- 
partment], (2)  the  submission  of  statements  thereof,  bills 
therefor,  and  all  other  supporting  papers,  (3)  the  sub- 
mission of  engineers'  and  accountants'  certificates,  and 
(4)  such  additions  to  the  allowance  of  cost  and  such 
regulations  and  instructions  with  regard  to  its  determi- 
nation as  from  time  to  time  shall  be  adopted  by  the 

,  or  as  may  be  required,  in  order  to  enable  the 

contracting  officer  to  issue  his  proper  certificate  for  pay- 
ment thereof. 

The  decision  of  the  contracting  officer  on  all  questions 
of  the  allowance  and  determination  of  costs  and  the 
payment  thereof  shall  be  final,  except  that  either  upon 
the  completion  of  the  contract  by  the  contractor,  or  its 


25 

termination  by  the  United  States,  or  whenever  claims 

of  cost  amounting  in  the  aggregate  to  $  _ 

(this  figure  should  bear  a  substantial  relation  to  the 
total  estimated  cost),  shall  have  been  disallowed  or  de- 
termined adversely  to  the  contractor  by  the  contracting 

officer,  the  contractor  may  appeal  to  the  

by  filing  one  statement  of  claim  which  shall  em- 
brace all  claims  of  cost  previously  disallowed  or  adversely 
determined,  provided  that  all  such  claims  shall  be  certi- 
fied by  an  accountant  designated  by  the  contracting 
officer  as  being  in  their  entirety  the  subject  of  expenditure 

of,  or  cost  to,  the  contractor.     The  decision  of  the    

shall  be  final  upon  such  appeal. 

ARTICLE  VI.  All  increased  facilities,  material,  sup-  InsPectIon- 
plies  and  the  like  furnished  under  this  contract,  the 
plant,  machinery,  tools  and  other  equipment,  all  work- 
manship, the  articles,  and  all  bills,  statements,  receipts, 
vouchers,  books,  correspondence,  memoranda  and  other 
records  of  all  sorts  of  the  contractor  in  any  way  related 
to  the  subject  of  this  contract,  shall  be  at  all  times  sub- 
ject to  inspection  by  the  proper  officers  or  agents  of  the 

Department,    or    persons    designated    by    the 

_  _ '_  _   (here  insert  title  of  head 

of  department)  or  the  contracting  officer,  and  the  con- 
tractor shall  furnish  reasonable  facilities  and  assistance 
for  all  such  inspection.  The  contractor  shall  keep  all 
such  records  in  shape  for  ready  reference  and  shall  pre- 
serve the  same  for  a  period  of  at  least  six  years  after  the 
completion  of  the  contract.  Whatever  material  is  used 
in  making  the  articles,  the  articles  and  all  other  property 
paid  or  to  be  paid  for  by  the  United  States,  which  does 
not  in  all  respects  fulfill  the  requirements  of  the  contract 
shall  be  rejected,  and  the  decision  of  the  contracting  officer 
as  to  the  quantity  and  quality  thereof  shall  be  final. 

ARTICLE  VII.  It  is  agreed  that  the  contracting  officer  ^^ in  specifica- 
may,  by  written  notice  to  the  contractor,  make  changes 
in  the  drawings  and  specifications  forming  part  of  this 
contract,  (and  if  such  changes  involve  substantially  ad- 
ditional work  for  the  contractor's  manufacturing  organ- 
ization, or  labor  and  material,  a  fair  addition  shall  be  made 
to  fixed  profit  so  that  in  any  event  the  fixed  profit  shall 
be  an  amount  not  less  than  ten  per  cent,  of  the  cost  pro- 
vided for  in  Article  V  hereof;  but  if  such  changes  involve 


Additional  articles. 


Termination. 


26 

substantially  less  of  such  work,  or  labor  and  material,  a 
fair  deduction  in  no  event  to  reduce  the  fixed  profit  to 
an  amount  less  than  ten  per  cent,  of  the  cost  provided  for 
in  Article  V  hereof,  may  be  made  therefrom,  all  as  shall 
be  determined  by  the  contracting  officer) . 

[Note:  The  last  clause  is  wholly  inapplicable  to  contracts 
for  usual  and  standard  articles  not  subject  to  change.] 

ARTICLE  VIII.  The  United  States  shall  have  the  right 
to  order  at  any  time  before  the  completion  of  this  contract 
and  the  contractor  shall  thereupon  supply  additional  arti- 
cles under  the  terms  of  this  contract,  not  to  exceed 
per  cent.,  of  the  quantities  herein  contracted  for,  upon  the 
same  terms  as  to  fixed  profit  and  other  payments,  or  at 
such  reasonable  advance  upon  fixed  profit  as  may  be  fixed 
by  the  contracting  officer;  the  articles  to  be  delivered  upon 
the  dates  fixed  by  the  contracting  officer  or  as  near  thereto 
as  the  contractor's  best  efforts  will  allow.  It  is  further 
agreed  that  the  United  States  may  accept,  with  the  con- 
sent of  the  contractor,  in  full  satisfaction  of  this  contract, 
such  lesser  quantities  of  the  articles  herein  contracted  for 
as  the  contracting  officer  may  designate. 

ARTICLE  IX.  In  the  event  of  failure  or  probable  fail- 
ure of  the  contractor  to  comply  with  the  terms  of  this 
contract  or  any  of  them,  or  in  the  event  that  in  the 

opinion  of  the   (here  insert  title  of  the 

head  of  the  department)  the  public  interests  so  require, 
this  contract  may  be  terminated  by  notice  in  writing 
to  the  contractor,  without  prejudice  to  any  claim  the 
United  States  may  have  against  the  contractor.  There- 
upon the  contracting  officer,  with  the  approval  of 

the _____    (here  insert  title  of   the  head  of 

the  department)  may  proceed  to  complete  the  making 
and  delivery  of  the  articles,  or  any  part  thereof,  as 
well  as  any  additional  articles,  and  may  employ  such 
agents  and  employees,  including  the  contractor,  his 
agents  and  employees,  as  the  contracting  officer  may  deem 
necessary  or  desirable,  and  may  take  possession  of  the 
plant  and  property  of  the  contractor  used  in  the  per- 
formance of  this  contract,  secure  from  the  contractor  an 
assignment  of  all  contracts  and  agreements  relating  to 
this  contract,  which  the  contractor  hereby  agrees  to 
assign,  and  may  generally  do  and  perform  all  acts  and 
things  necessary  or  advisable  in  order  to  obtain  the  articles 
which  are  the  subject  of  this  contract,  all  of  which  is 


27 

agreed  to  by  the  contractor.  In  the  event  and  to  the 
extent  that  the  United  States  takes  over  the  plant  and 
property  of  the  contractor  for  the  completion  of  this  con- 
tract, or  for  the  manufacture  of  additional  articles,  the 
contractor  shall  be  paid  a  reasonable  rental  for  the  use  of 
the  same,  as  may  be  mutually  agreed  upon  between  the 
contracting  officer  and  the  contractor,  or  if  agreement  is 

impossible,  as  may  be  fixed  by  the as 

reasonable  rental,  and  the  manufacture  of  the  articles  by 
the  United  States  shall  always  be  conducted  without  cost 
of  any  sort  to  the  contractor. 

In  the  event  of  the  termination  of  this  contract  as 
aforesaid,  the  United  States  shall  pay  the  contractor  all 
costs  of  the  contractor  theretofore  incurred  and  not 
previously  paid,  which  may  be  allowed  pursuant  to 
Article  V  hereof. 

In  addition  thereto  the  United  States  shall  make  the 
following  payments  under  the  following  conditions: 

(1)  In  the  event  that  the  contractor  shall  not  be  in 
default  under  this  contract  at  the  date  of  such  termina- 
tion, the  contractor  shall  be  paid  a  sum  which  together 
with  all  fixed  profits  theretofore  paid  in  accordance  with 
paragraph  (1)  of  Article  IV  shall  be  equivalent  to  ten  per 
cent  (10%)  of  all  cost,  except  the  cost  of  material,  sup- 
plies and  the  like  raw  and  not  in  process  of  conversion, 
which  the  United  States  shall  have  previously  paid,  and 
shall  then  be  obligated  to  pay.     Such  ten  per  cent  (10%) 
of  cost  payment  is  subject  to  such  addition  or  deduction 
depending  on  the  difference  between  estimated  and  actual 
cost  of  articles  which  have  been  delivered  and  accepted  as 
may  be  determined  in  accordance  with  subdivision  (a)  of 
paragraph  (2)  of  Article  IV  hereof. 

[Note:  If  subdivision  (a),  paragraph  (2),  of  Article  IV  is 
no  part  of  the  bargain,  omit  the  foregoing  sentence.] 

(2)  In  the  event  that  the  contractor  shall  be  in  de- 
fault under  this  contract  at  the  date  of  such  termina- 
tion,  but  in  the   opinion  of  the   contracting  officer  ex- 
pressed in  writing  shall  have  in  good  faith  used  his  best 
efforts  in  the  performance  of  the  contract,  then  the  ten 
per  cent  ,(10%)  of  cost  less  fixed   profits  as  determined 
in  the  foregoing  paragraph  (1)  shall  be  decreased  to  such 

extent,  but  not  below  per  cent  (     %)  to  the  end 

that  the  resulting  per  cent,  of  cost  which  shall  bo  paid 
the  contractor  may,  in   the   opinion   of   the   contracting 
officer,    fairly   measure    the    service    of    the    contractor, 


28 

and  such  additional  payment  only  shall  be  made  to  the 
contractor. 

[Note:  This  clause  should  not  be  used  in  instances 
where  the  contractor's  previous  experience  in  manufac- 
turing gives  fair  assurance  that  he  is  able  to  comply 
with  the  terms  of  the  contract.  Accordingly  this  clause 
should  not  generally  be  permitted.] 

The  foregoing  provisions  with  respect  to  payments 
to  be  made  by  the  United  States  upon  the  termination 
of  this  contract  shall  also  apply  in  the  event  that  the 
continued  performance  by  the  contractor  of  this  contract 
is  finally  prevented  by  acts  of  war,  riots,  incendiarism  or 
other  such  causes  beyond  the  control  and  without  the 
fault  of  the  contractor  which  may  be  directly  traceable  to 
the  United  States  being  in  a  state  of  war. 

In  the  event  of  the  termination  of  this  contract  as 
aforesaid  any  and  all  obligation  of  the  United  States  to 
make  any  payments  to  the  contractor  hereunder,  other 
than  those  specified  in  this  Article  IX,  shall  at  once  cease 
and  determine. 

Disposition  of  unused      ARTICLE   X.   Upon   the    completion   of   this    contract. 

materials, etc., upon ter-  • ,          .,        TT    .,     ,     &. 

inmation  of  contract,  whether  by  the  contractor  or  by  the  United  States,  or 
the  termination  of  the  contract  without  further  per- 
formance thereof  in  accordance  with  Article  IX  hereof, 
or  from  time  to  time  during  the  performance  of  this  con- 
tract, the  contractor  agrees  to  make  such  disposition,  at 
the  expense  and  for  the  account  of  the  United  States,  of  the 
increased  facilities,  unused  material,  supplies  and  the  like, 
scrap,  waste  or  defective  material,  rejected  articles  and 
generally  all  such  property  which  shall  have  been  paid  for 
by  the  United  States,  as  the  contracting  officer  shall  in 
writing  direct;  such  direction  to  be  given  during  the  per- 
formance of  this  contract  or  within  60  days  after  its  com- 
pletion. Any  of  the  foregoing  property  may  be  sold  to 
the  contractor  by  the  contracting  officer  upon  terms 
mutually  agreeable.  If  the  contractor  is  thereby  required 
to  store  such  property,  the  cost  of  storage  and  all  costs 
incident  thereto  shall  be  from  time 'to  time  paid  to  the 
contractor  by  the  United  States.  If  land  and  buildings 
of  the  contractor  are  used  for  storage,  the  United  States 
shall  pay  to  the  contractor  a  reasonable  rental  therefor, 
as  may  be  mutually  agreed  upon,  or  if  agreement  is  im- 
possible, as  may  be  fixed  by  the (here 

insert  title  of  head  of  department)  but  in  no  event  to 


29 

exceed  ten  per  cent  per  annum  of  the  cost  of  such  land 
and  buildings  to  the  contractor,  or  a  proportion  of  such 
cost  according  to  the  proportion  of  land  and  buildings 
used.  It  is  agreed  that  the  foregoing  measure  of  payment 
shall  apply  to  any  storage  of  the  articles  in  accordance 
with  Article  III  hereof. 

ARTICLE  XI.  The  contractor  agrees  not  to  create  or 
suffer  to  be  created,  any  mortgage,  lien,  pledge  or  other 
encumbrance  upon  any  of  the  increased  facilities,  ma- 
terials, supplies  or  other  property  for  which  the  United 
States  shall  pay,  and  which  is  in  the  possession  of  the  con- 
tractor, and  further  agrees  not  to  permit  or  suffer  any 
attachments,  mechanics'  liens  or  other  liens  or  encum- 
brances to  attach  to  such  property  or  the  articles,  and 
in  the  event  that  any  such  attachment,  lien  or  encum- 
brance is  created,  agrees  to  pay  and  discharge  the  same, 
to  the  end  that  all  property  which  shall  have  been  paid 
for  by  the  United  States  shall  be  and  remain  free  and  unen- 
cumbered property  of  the  United  States,  provided  that 
nothing  in  this  Article  contained  shall  require  the  con- 
tractor to  make  any  such  payments  so  long  as  he  shall  in 
good  faith  contest  the  validity  of  the  claim  or  claims 
therefor  and  so  long  as  the  delivery  of  the  articles  is  not 
interfered  with,  and  provided  further  that  the  contractor 
shall  bond  the  claim  asserted.  The  contractor  shall  give 
due  notice  that  all  property  which  shall  have  been  paid  for 
by  the  United  States  belongs  to  the  United  States. 

ARTICLE  XII.  This  contract  shall  not,  nor  shall  any  al£ontract  mot  8SSi«n- 
right  to  receive  payment  or  any  other  interest  therein,  be 
transferred  or  assigned  by  the  contractor  to  any  persons, 
firms  or  corporations. 

ARTICLE  XIII.  In  the  event  that  labor  disputes  shall    Labor  disputes, 
arise  directly  affecting  the  performance  of  this  contract 
and  causing  or  likely  to  cause  delay  in  making  the  de- 
liveries upon  the  date  or  dates  specified,  the  contractor 

shall  address  a  written  statement  thereof  to  the 

for  transmission  to  the  Secretary  of 

with  the  request  that  such  dispute  be  settled,  providing 
such  information  and  access  to  information  within  the 

control  of  the  contractor  as  the  Secretary  of 

shall  require,  and  it  is  stipulated  and  agreed  that  the  Sec- 
retary of may  thereupon  settle  or  cause  to  be 

settled  such  dispute. 


30 

Eight-hour  day.  ARTICLE    XIV.  No    laborer    or    mechanic    doing    any 

part  of  the  work  contemplated  by  this  contract,  in  the 
employ  of  the  contractor,  or  any  sub-contractor  con- 
tracting for  any  part  of  said  work  contemplated,  shall 
be  required  or  be  permitted  to  work  more  than  eight 
(8)  hours  in  any  one  calendar  day  upon  such  work,  such 
prohibition  being  in  accordance  with  the  Act  approved 
June  19,  1912,  limiting  the  hours  of  daily  service  of 
mechanics  and  laborers  on  work  under  contracts  to 
which  the  United  States  is  a  party.  For  each  violation 
of  the  requirements  of  this  Article  a  penalty  of  Five 
Dollars  ($5.00) '  shall  be  imposed  upon  the  contractor 
for  each  laborer  or  mechanic  for  every  calendar  day 
in  which  said  employee  is  required  or  permitted  to  labor 
more  than  eight  (8)  hours  upon  said  work,  and  all  pen- 
alties thus  imposed  shall  be  withheld  for  the  use  and 
benefit  of  the  United  States;  provided,  that  the  above 
provision  shall  not  be  enforced  nor  shall  any  penalty  be 
exacted  in  case  such  violation  shall  occur  while  there 
is  ha  effect  any  executive  order  suspending  the  provi- 
sions of  said  Act  approved  June  19,  1912,  or  waiving  the 
provisions  and  stipulations  thereof  with  respect  to  either 
this  contract  or  any  class  of  contracts  in  which  this 
contract  shall  be  included,  or  when  the  violation  was 
due  to  any  extraordinary  event  or  conditions  of  manu- 
facture, or  to  any  emergency  caused  by  fire,  famine,  or 
flood,  by  danger  to  life  or  property,  or  by  other  extraor- 
dinary events  or  conditions  on  account  of  which,  by  sub- 
sequent executive  order,  such  past  violation  shall  have 
been  excused. 

It  is  agreed  that  the  contractor,  in  doing  any  part  of  the 
work  contemplated  by  this  contract,  and  any  subcon- 
tractor contracting  for  any  part  of  said  work,  shall  com- 
ply with  the  provisions  of  the  Naval  Appropriation  Act 
approved  March  4,  1917,  and  the  executive  order  of  the 
President  of  the  United  States  dated  March  24,  1917,  in 
respect  to  the  wages  of  persons  employed  upon  contracts 
with  the  United  States,  so  long  as  said  Act  approved  March 
4,  1917,  or  said  executive  order  dated  March  24,  1917,  shall 
be  in  force  and  effect. 

officials  not  to  bene-  ARTICLE  XV.  No  member  of,  or  delegate  to,  Con- 
gress or  Resident  Commissioner,  nor  any  person  belong- 
ing to  or  employed  in  the  military  service  of  the  United 
States,  is,  or  shall  be  admitted  to  any  share  or  part  of 
this  contract,  or  to  any  benefit  that  may  arise  there- 


31 

from,  but  this  Article  shall  not  apply  to  this  contract 
so  far  as  it  may  be  within  the  operation  or  exception 
of  Section  116  of  the  Act  of  Congress  approved  March 
4,  1909  (35  Stats.,  1109). 

ARTICLE  XVI.  No  person  or  persons  shall  be  employed    NO  prison  labor. 
in  the  performance  of  this  contract  who  are  undergoing 
sentences   of   imprisonment   at   hard  labor  which  have 
been  imposed  by  the  courts  of  the  several  States,  Terri- 
tories or  municipalities  having  criminal  jurisdiction. 


ARTICLE  XVII.     Except  as  this  contract  shall  other- 
wise  provide,   any  doubts  or  disputes  which  may  arise  Ordnance 
as  to  the  meaning  of  anything  in  this  contract,   shall 
be  referred  to  the  ..................  ,  f  or  determination. 

If,  however,  the  contractor  shall  feel  aggrieved  at  any 
decision  of  the  ..................  upon  such  reference, 

he  shall  have  the  right  (save  only  as  to  the  allowance 
and  determination  of  costs  as  provided  for  in  Article  V 
hereof)  to  submit  the  same  to  the  Secretary  of  ..........  , 

whose  decision  shall  be  final. 


ARTICLE  XVIII.  Notice  under  this  contract  shall  be 
deemed  to  have  been  sufficiently  given  to  and  received  by 
the  contractor  when  mailed  in  a  sealed  postpaid  wrapper 
addressed  to 

ARTICLE  XIX.  This  contract  may  be  executed  in  any 
number  of  counterparts,  all  of  which  together  shall  con- 
stitute one  original  contract.  Wherever  the  term  "con- 
tracting officer"  is  used  in  this  contract  the  same  shall 
be  construed  to  mean  the  contracting  officer  executing 
this  agreement,  his  successor  or  successors,  his  duly 
authorized  agent  or  agents,  or  anyone  designated  by 
the _  _ ,  from  time  to  time,  to  act  as  con- 
tracting officer  hereunder. 


Notice. 


Execution. 


32 

IN  WITNESS  WHEREOF,  the  party  of  the  first  part  has 
caused  this  contract  to  be  executed  by  its  proper  officers 
thereunto  duly  authorized,  and  the  United  States  of 
America  has  caused  this  contract  to  be  executed  by  the 
undersigned  contracting  officer  thereunto  duly  author- 
ized. 

Witnesses:  Signatures: 


Contractor. 


Dept., 

Contracting  Officer. 


(Executed  hi  quintuplicate.) 

Annexed  hereto : 

Schedule  I — Drawings  and  specifications. 


APPENDIX  C.— STANDARD  FORM  FOR  PURCHASE 
CONTRACT." 

UNITED  STATES  OF  AMERICA. 
DEPARTMENT. 

THESE  ARTICLES  OF  AGREEMENT  entered  into  this 

.  between 


of  the  first  part  (hereinafter  called  the  contractor),  and 

THE  UNITED  STATES  OF  AMERICA,  by _  _. 

_ , Department, 

_.  (hereinafter  called  the  contracting 

officer) ,  acting  by  authority  of  the , 

[here  insert  title  of  head  of  department],  and  under  the 
direction  of  the  Secretary  of ,  of  the  second  part ; 

WITNESS: 

WHEREAS  war  exists  between  the  United  States  and 
Germany  constituting  a  national  emergency, 

Now,  THEREFORE,  under  the  provisions  of  Section  120 
of  an  Act  of  Congress  relating  to  National  Defense, 
approved  June  3,  1916,  and  pursuant  to  all  other  laws  of 
the  United  States  and  executive  orders  of  the  President 
of  the  United  States  or  heads  of  its  departments  under 
which  the  requirements  of  advertisements  for  proposals 
are  dispensed  with,  and  contracts  in  the  form  hereof 
duly  authorized,  and  in  consideration  of  the  mutual 
agreements  herein  contained,  the  said  parties  have 
agreed  and  by  these  presents  do  agree  to  and  with  each 
other  as  follows,  viz: 

ARTICLE  I.  The  contractor  agrees  to  make  for  and  sell 
to  the  United  States  the  following  articles  (insert  name 
and  number  of  articles  contracted  for) : 


hereinafter  called   "the   articles,"   each  of  the   articles 
being  referred  to  as  a  "unit/'  in  accordance  with  the 

oThis  form  has  not  been  submitted  to  the  Comptroller  of  the  Treasury  for  approval, 
and  is  intended  solely  as  a  guide  to  contracting  officers  and  others  in  preparing  contracts. 
Contracts,  after  being  drawn,  may  be  submitted  to  the  comptroller  for  approval,  if  the 
contracting  agents  think  such  action  necessary. 

(33) 


34 

drawings  and  specifications  hereto  attached  marked 
Schedule  I,  and  made  a  part  hereof,  together  with  such 
changes  as  may  be  made  therein  as  hereinafter  provided, 
and  the  United  States  agrees  to  purchase  the  articles 
and  to  pay  therefor,  all  upon  the  terms  and  conditions 
in  this  contract  set  forth. 

Deliveries.  ARTICLE  II.  The    contractor    agrees    to    deliver    the 

articles  according  to  the  schedule  of  deliveries  set  forth 
at  the  end  of  this  Article  II. 

Time  being  of  the  essence,  the  contractor  will,  if  re- 
quested so  to  do  by  the  contracting  officer,  use  his  best 
efforts  to  anticipate  said  schedule,  and  agrees  to  give 
the  performance  of  this  contract  precedence  over  all  work 
for  parties  other  than  the  United  States.  The  contractor 
from  time  to  tune  will,  and  upon  request  of  the  contract- 
ing officer  at  any,  time  shall,  furnish  to  the  contracting 
officer  statements  and  reports  upon  the  progress  of  the 
work,  and  any  and  all  factors  relating  to  the  delivery  of 
the  articles. 

Deliveries  of  the  articles,  suitably  packed,  boxed,  and 
marked  according  to  the  instructions  of  the  contracting 
officer,  shall  be  made  to  the  contracting  officer  at  the 

plant  of  the  contractor  at , 

but  the  contractor,  at  the  cost  and  risk  of  the 
United  States,  shall  store  the  articles  for  so  long  a 
period,  not  exceeding  one  year,  in  all  respects  as  the 
contracting  officer  shall  direct,  providing  such  space  and 
buildings  as  may  be  desirable  for  adequate  and  safe 
storage.  The  United  States  shall  pay  to  the  contractor 
such  fair  and  just  rental  for  land  and  buildings  of  the 
contractor  used  for  storage  as  may  be  mutually  agreed 
upon,  or,  if  agreement  is  impossible,  as  may  be  fixed  by 

the  _ ,  but  such  rental  shall  in  no  event 

exceed  10  per  cent  per  annum  of  the  cost  of  such  land 
and  buildings  to  the  contractor,  or  a  proportion  of  such 
cost  according  to  the  proportion  of  the  land  and  build- 
ings used.  Also  at  the  cost  of  the  United  States  the 
contractor  shall  ship  the  articles  to  any  point  in  the 
United  States,  making  all  arrangements  for  transporta- 
tion, all  according  to  the  instructions  of  the  contract- 
nig  officer.  [Note:  Any  of  the  foregoing  provisions  may 
be  omitted  where  inapplicable.] 

The  contractor  shall  not  be  responsible  for  any  delays 
which  shall  be  determined  by  the  contracting  officer 
to  have  been  caused  by  direct  act  of  the  United  States 


35 

without  fault  of  the  contractor,  nor  for  any  other  cause 
beyond  the  control  of  and  without  the  fault  of  the  con- 
tractor, such  as  explosions,  riots,  labor  strikes,  acts  of  war 
and  the  like,  but  the  contractor  shall  use  his  best  efforts 
to  remove  any  such  cause  for  delay  which  may  occur,  and 
whenever  the  effect  of  such  cause  shall  be  removed,  the 
contractor  shall  proceed  with  the  performance  of  this  con- 
tract with  the  utmost  dispatch. 

On  completion  by  the  contractor  of  any  lot  of 

(insert  a  substantial  number)  of  component  parts  or  of  the 
articles  ready  for  inspection,  the  contractor  shall  notify 
the  contracting  officer  that  the  lot  is  ready  for  inspection 
at  the  plant  or  plants  of  the  contractor,  upon  receipt  of 
which  notice  prompt  inspection  shall  be  made  by  the 
United  States.  [Note:  This  paragraph  should  be  omit- 
ted unless  tEe  articles  are  to  be  delivered  in  large 
quantities.] 

SCHEDULE  OF  DELIVERIES. 


ARTICLE  III.  It  is  agreed  that  the  sum  of contract  price. 

dollars  ($ )  shall  be  the  basic  purchase  price 

of  each  unit  delivered  and  accepted,  and  that  the  sum  of 

dollars  ($ )  shall  be  the 

total  basic  purchase  price  for  the  articles  contracted  for, 
subject,  however,  to  the  following  adjustments: 

(1)  The  aforesaid  basic  purchase  price  is  based  on  the  Fluctuations  in 
following  estimate  of  the  cost  of  materials  and  component  pric  aterial- 
parts: 

[Insert  schedule  of  estimated  cost  of  the  total  amount 
of  each  kind  of  material  and  component  parts  to  be  pur- 
chased by  the  contractor  and  used  to  make  the  articles 
such  as  so  much  steel,  copper,  spelter,  and  the  like,  at 
the  estimated  cost  to  the  contractor  per  pound  or  per 
unit  of  purchase.  This  schedule  must  be  inserted  if 
either  the  following  portion  of  paragraph  (1)  or  para- 
graph (2)  is  made  a  part  of  the  contract;  otherwise  it 
may  be  omitted.] 

Immediately  upon  the  completion  of  this  contract,  or 
its  termination  by  the  United  States,  the  entire  actual 
cost  of  materials  and  component  parts  purchased  by  the 


36 

contractor  and  used  in  the  performance 'of  this  contract 
(other  than  materials  and  component  parts  furnished  by 
the  United  States,  and  such  unused  materials  and  com- 
ponent parts  as  the  contractor  may  have  purchased  but 
has  on  hand  upon  such  completion  or  termination)  shall 
be  determined  by  the  contracting  officer.  If  such  entire 
actual  cost  shall  exceed  the  above  estimate  thereof,  the 
basic  total  purchase  price  for  the  articles  shall  be  increased 
by  an  amount  equal  to  such  excess,  and  the  basic  purchase 
price  of  each  unit  shall  be  increased  proportionately. 
If,  however,  such  entire  actual  cost  shall  be  less  than  the 
above  estimate  thereof,  the  basic  total  purchase  price 
shall  be  reduced  by  an  amount  equal  to  such  difference  be- 
tween actual  and  estimated  cost,  and  the  basic  purchase 
price  of  each  unit  shall  be  decreased  proportionately. 
The  contractor  shall  not  purchase  or  contract  to  purchase 
any  materials  or  component  parts  without  first  obtain- 
ing the  approval  of  the  contracting  officer,  and  the  cost 
of  any  materials  or  component  parts  which  the  con- 
tractor shall  purchase  or  contract  to  purchase  without 
such  approval  shall  not  be  included  in  the  aforesaid 
determination  of  the  entire  actual  cost  of  materials 
and  component  parts  purchased  by  the  contractor  and 
used  in  the  performance  of  this  contract. 

[Note:  The  above  provision  may  be  omitted  if  so  de- 
sired.] 

(2)  The  United  States  may,  at  the  option  of  the  con- 
tracting officer,  from  time  to  time  furnish  the  contractor 
with  any  materials  or  component  parts  to  be  used  in  the 
performance  of  this  contract:  Provided,  however,  That 
the  contractor's  undertakings  for  the  same  made  with 
the  approval  of  the  contracting  officer,  are  not  thereby 
interfered  with,  and  a  fair  deduction  from  the  basic  pur- 
chase  price   shall   be   made   therefor;  such   deduction, 
whenever  practicable,  shall  equal  the  contractor's  esti- 
mate of  the  cost  of  such  materials  or  component  parts. 

[Note:  It  is  recommended  that  the  above  paragraph 
be  used  whenever  possible,  in  order  that  the  United 
States  may  take  advantage  of  any  saving  it  is  able  to 
make  in  the  purchase  of  materials  and  component  parts.] 

(3)  In  the  event  that  the  contractor  shall  fail  to  de- 
liver the  articles  according  to  the  schedule  of  deliveries 
provided  herein  for  deliveries  of  complete  articles,  sets, 
or  lots,  as  the  case  may  be,  the  contractor  shall  be  in  de- 


37 

fault  under  this  contract,  which  default  shall  continue 
until  such  time  as  such  articles,  sets,  or  lots,  shall  be  de- 
livered. When  one  or  more  parts  of  an  article,  or  articles 
of  a  set  or  lot,  are  not  delivered  by  the  proper  date,  the 
complete  article,  or  the  entire  set  or  lot,  as  the  case  may 
be,  shall  be  classed  and  considered  as  undelivered  for  the 
purpose  of  computing  liquidated  damages.  For  each  day 
during  which  the  contractor  shall  be  in  default  on  ac- 
count of  such  deliveries,  the  United  States  shall  deduct 
from  any  payment  to  be  made  to  the  contractor  there- 
after    of  - .  per  cent  of  the  basic  purchase 

price,  before  making  any  adjustment,  of  each  article, 
or  set  or  lot  of  articles,  with  respect  to  which  the  con- 
tractor shall  be  in  default,  and  the  United  States  shall 
also  deduct  from  any  payment  to  be  made  to  the  con- 
tractor thereafter  such  additional  cost  of  inspection  and 
superintendence,  if  any,  as  may  be  caused  by  any  default 
by  the  contractor:  Provided,  however,  That  in  no  event 
shall  such  deductions,  or  either  of  them,  amount  in  the 

aggregate  to  more  than  the  sum  of  $ per  unit. 

[ Note:  This  limit  to  the  amount  which  may  be  deducted 
on  account  of  liquidated  damages  should  be  determined 
with  a  view  to  a  minimum  purchase  price  which  the  con- 
tractor should  receive  even  in  case  of  delay  in  deliveries.] 
It  is  understood  and  agreed  that  if  upon  default  of  the  con- 
tractor as  aforesaid  the  United  States  shall  elect  to  termi- 
nate this  contract  as  provided  in  Article  VIII  hereof,  the 
aforesaid  deductions  shall  be  made  only  for  each  day 
prior  to  such  termination,  and  that  unless  the  United 
States  shall  so  terminate  this  contract  the  contractor  shall 
proceed  to  complete  the  delivery  of  articles  with  the 

utmost  dispatch  and  that  such  deduction  of of 

per  cent  of  the  basic  purchase  price,  before  making  any 
adjustment,  of  each  article,  or  set  or  lot  of  articles, 
with  respect  to  which  the  contractor  shall  be  in  de- 
fault, for  each  day  of  default  in  delivery,  is  not  im- 
posed as  a  penalty,  but  as  a  liquidation  of  actual  damages 
which  according  to  a  careful  and  reasonable  estimate  the 
United  States  will  sustain  if  deprived  of  the  use  of  such 
article,  or  set  or  lot  of  articles,  during  the  period  for 
which  deduction  is  made:  Provided,  however,  That  the 
contracting  officer  may  extend  the  time  for  delivery  of 
any  articles  for  a  period  equal  to  any  delay  or  delays 
caused  in  his  opinion  by  any  act  of  the  United  States  or 
by  any  act  of  war,  riot,  incendiarism,  and  the  like,  or  by 


38 

strike,  fire,  storm,  and  the  like,  or  by  other  cause  beyond 
the  control  and  without  the  fault  of  the  contractor  oc- 
curring during  such  time  as  the  contractor  may  not  be 
in  default  or  before  the  expiration  of  any  previous  ex- 
tension of  the  time  for  delivery  of  any  articles,  and  no 
deduction  shall  be  made  for  delay  arising  out  of  any 
such  cause. 

[Note:  Paragraph  (3)  should  be  omitted  if  liquidated 
damages  are  no  part  of  the  bargain.] 

s  £:mc£ionss  to  ^  ^  *s  aSreed  ^hat  the  contracting  officer  may,  by 
written  notice  to  the  contractor,  make  changes  in  the 
drawings  and  specifications  forming  part  of  this  con- 
tract, and  if  such  changes  involve  substantially  addi- 
tional work  for  the  contractor's  manufacturing  organiza- 
tion, or  labor  and  material,  a  fair  addition  shall  be 
made  to  the  basic  purchase  price;  but  if  such  changes 
involve  substantially  less  of  such  work,  or  labor  and 
material,  a  fair  deduction  shall  be  made  therefrom,  all 
as  shall  be  determined  by  the  contracting  officer. 

,  £ettll?nei!t    of      (5)  In  the  event  that  labor  disputes  shall  arise  directly 

labor  disputes.  ~  .    " 

affecting  the  performance  of  this  contract  and  causing 
or  likely  to  cause  delay  in  making  the  deliveries  upon 
the  date  or  dates  specified,  the  contractor  shall  address 

a  written  statement  thereof  to  the 

for  transmission  to  the  Secretary  of  with  the  re- 
quest that  such  dispute  be  settled,  providing  such  infor- 
mation and  access  to  information  within  the  control  of 

the  contractor  as  the  Secretary  of   shall  require, 

and  it  is  stipulated  and  agreed  that  the  Secretary  of 

may  thereupon  settle  or  cause  to  be  settled  such  dispute, 
and  that  the  contractor  shall  accept  and  comply  with  all 
the  terms  of  such  settlement.  If  the  contractor  is 
thereby  required  to  pay  labor  costs  higher  than  those 
prevailing  in  the  performance  of  this  contract  prior  to 
such  settlement,  a  fair  addition  to  the  basic  purchase 
price  of  the  articles  shall  be  made  therefor;  but  if  such 
settlement  reduces  the  labor  costs  of  the  contractor,  a 
fair  deduction  shall  be  made  from  the  basic  purchase 
price,  all  as  may  be  determined  by  the  contracting  officer. 
No  claim  for  addition  or  deduction  on  account  of  such 
settlement  shall  be  allowed  unless  the  same  has  been 
ordered  in  writing  and  actually  put  into  effect. 
Payments.  ARTICLE  IV.  The  United  States  will  pay  the  purchase 

price,  subject  to  adjustment  as  aforesaid,  to  the  con- 
tractor as  follows; 


39 

(1)  A-  sum  equal  to  . .  per  cent  of  the  actual  cost  to  the 
contractor  of  all  materials  purchased  by  the  contractor 
for  use  in  the  performance  of  this  contract  and  delivered 
in  any  month  shall  be  paid  to  the  contractor  as  early  in 
the  following  month  as  possible,  upon  the  proper  certifi- 
cate or  certificates  of  the  contracting  officer. 

[Note:  If  certain  component  parts  are  to  be  manufac- 
tured by  the  contractor,  a  paragraph  may  be  inserted 
here  providing  for  payment  upon  delivery  of  each  such 
component  part  of  80  per  cent  of  the  estimated  total 
cost  of  conversion  of  the  same,  but  exclusive  of  the  cost 
of  raw  material.  Such  estimated  total  cost  of  manufac- 
ture should  be  set  forth  in  the  contract.  Since  no  varia- 
tion of  the  total  purchase  price  is  involved  here  and  the 
question  is  only  what  proportion  thereof  shall  be  paid  in 
advance  in  order  to  assist  the  contractor  in  financing  the 
job  and  what  proportion  upon  completion  of  the  con- 
tract, it  is  believed  that  it  is  sufficiently  accurate  to  base 
part  payments  upon  such  estimated  cost  of  conversion, 
thus  avoiding  the  necessity  of  determining  the  actual 
cost  thereof.] 

(2)  The  sum  of dollars  for  each  unit  of 

the  articles  delivered  and  accepted  during  any  month 
shall  be  paid  to  the  contractor  as  early  in  the  following 
month  as  possible,  upon  the  proper  certificate  or  certifi- 
cates of  the  contracting  officer. 

[Note:  The  sum  to  be  paid  pursuant  to  this  paragraph 
for  each  unit  of  the  articles  should  be  about  80  per  cent 
of  the  estimated  cost  of  converting  materials  and  com- 
ponent parts  into  a  complete  article.] 

(3)  Upon  the  certificate  of  the  contracting  officer  that 
all  of  the  articles  contracted  for  have  been  delivered  to 
the  United  States  and  accepted,  the  United  States  shall 
pay  to  the  contractor  the  amount,  if  any,  by  which  the 
purchase  price,  finally  adjusted  according  to  the  provi- 
sions of  Article  III  hereof,  shall  exceed  the  aggregate 
amount  of  all  payments  theretofore  made. 

The  United  States  shall  make  all  payments  promptly, 
and  to  this  end  may  attach  a  paymaster  in  the  main 
office  or  plant  of  the  contractor,  and  shall  so  do  if  pay- 
ments are  at  any  tune  unreasonably  delayed.  The 
United  States  may,  if  at  any  time  authority  exists  there- 
for and  the  contracting  officer  shall  deem  such  advisable, 
make  other  and  more  frequent  payments  not,  however, 
in  excess  of  the  purchase  price;  and  to  the  end  that 


40 

sufficient  money  may  be  retained  by  the  United  States 
to  cover  any  adjustments  of  the  purchase  price,  any 
liquidated  damages,  or  any  replacement  by  the  contractor 
of  materials,  component  parts,  or  complete  articles  re- 
jected by  the  contracting  officer  as  hereinafter  provided, 
the  contracting  officer  may  withhold  such  part  of  any 
payment  provided  for  herein  as  may  be  sufficient  for 
such  purpose.  No  payments  by  the  United  States  shall 
act  to  prevent  the  United  States  from  later  disputing  the 
validity  thereof  under  this  contract. 

ARTICLE  V.  All  property  paid  for  or  furnished  by  the 
United  States  shall  be  and  remain  the  property  of  the 
Title  to  prop-  United  States,  shall  be  suitably  marked  as  such  accord- 
ing to  the  directions  of  the  contracting  officer,  so  that  it 
may  be  always  identified  as  the  property  of  the  United 
States,  and  shall  be  kept  in  so  far  as  practicable  separate 
and  apart  from  property  belonging  to  the  contractor 
and  other  property  in  his  possession.  The  contractor 
hereby  waives  and  releases  all  lien  or  right  of  Hen  now 
existing  or  which  may  hereafter  arise  for  work  or  labor 
performed  or  materials  furnished  or  for  any  other  reason 
or  cause  under  this  contract,  under  any  lien  laws,  State 
or  Federal,  upon  the  articles  or  any  component  parts, 
material,  or  other  property  coming  into  his  possession 
which  it  is  contemplated  shall  presently  or  ultimately 
become  the  property  of  the  United  States. 

The  United  States  upon  the  rejection  by  the  contract- 
ing officer  of  any  materials,  component  parts,  or  complete 
articles  shall  be  considered  to  have  rejected  title  thereto. 
All  such  property  so  rejected  the  contractor  agrees  to 
immediately  replace,  without  cost  to  the  United  States, 
with  like  property  as  to  kind  and  amount  acceptable  to 
the  contracting  officer,  and  the  United  States  agrees  that 
all  scrap  resulting  from  manufacture  under  this  contract 
and  all  materials,  component  parts,  and  complete  articles 
rejected  as  aforesaid  shall  become  the  property  of  the 
contractor. 

ARTICLE  VI.  All  materials,  component  parts,  supplies 
and  the  like  furnished  under  this  contract,  all  workman- 
inspection,  g^p,  the  articles,  and  all  contracts  for  materials  and 
component  parts  purchased  by  the  contractor  and  all 
bills,  vouchers,  and  other  supporting  papers  relating  to 
payments  for  materials  and  component  parts  by  the 
United  States,  shall  be  at  all  tunes  subject  to  inspection 


41 

by  the  proper  officers  or  agents  of  the Depart- 
ment, or  persons  designated  by  the or 

the  contracting  officer,  and  the  contractor  shall  furnish 
reasonable  facilities  and  assistance  for  all  such  inspection. 
The  contractor  shall  keep  all  such  records  in  shape  for 
ready  reference,  and  shall  preserve  the  same  for  a  period 
of  at  least  six  years  after  the  completion  of  this  contract. 
Whatever  materials  and  component  parts  are  used  in 
making  the  articles,  the  articles,  and  all  other  property 
paid  or  to  be  paid  for  by  the  United  States,  which  do  not 
in  all  respects  fulfill  the  requirements  of  this  contract,  shall 
be  rejected,  and  the  decision  of  the  contracting  officer  as 
to  the  quantity  and  quality  thereof  shall  be  final.  The 
contractor  shall  replace  the  same  as  provided  for  in 
Article  V  hereof. 

ARTICLE  VII.  The  United  States  shall  have  the  right 
within  the  period  of  the  performance  of  this  contract  to  ar4ll£itional 
order  and  the  contractor  shall  thereupon  supply  any  addi- 
tional articles,  not  to  exceed per  cent  of  the  quantities 

herein  contracted  for,  upon  the  same  terms  as  to  price  as 
herein  provided,  or  at  such  reasonable  advance  of  price 
as  may  be  fixed  by  the  contracting  officer,  and  upon  con- 
ditions of  payment  and  deliveries  similar  to  those  herein 
contained,  and  the  contractor  shall  use  his  best  efforts  in 
furnishing  the  same  and  shall  give  the  performance  of 
such  work  precedence  over  work  for  all  parties  other 
than  the  United  States.  It  is  further  agreed  that  the 
United  States  may  accept,  with  the  consent  of  the  con- 
tractor, in  full  satisfaction  of  this  contract,  such  lesser 
quantities  of  the  articles  herein  contracted  for  as  the 
contracting  officer  may  designate. 

ARTICLE  VIII.  In   the   event   of  failure   of  the   con- 

Termination  of 

tractor  to  comply  with  the  terms  of  this  contract  or  extract, 
any  of  them,  constituting  a  default  hereunder,  or  in  the 
event  of  the  termination  of  the  war  in  which  the  United 
States  is  now  engaged,  this  contract  may  be  terminated 
by  the  United  States  by  notice  in  writing  to  the  con- 
tractor, without  prejudice  to  any  claim  the  United 
States  may  have  against  the  contractor. 

(1)  In  the  event  that  the  contractor  shall  be  in  default 
under  this  contract  at  the  date  of  its  termination  as 
aforesaid,  the  contracting  officer,  with  the  approval  of 

the  ,  may  proceed  to  complete  the 

making  and  delivery  of  the  articles,  or  any  part  thereof, 


42 

and  may  generally  do  and  perform  all  acts  and  things 
necessary  or  advisable  in  order  to  obtain  the  articles 
which  are  the  subject  of  this  contract,  and  the  contractor 
may  be  charged  the  amount,  if  any,  by  which  the  cost 
to  the  United  States  resulting  from  such  action  by  the 
contracting  officer  shall  exceed  the  purchase  price  as  set 
forth  in  Article  III  hereof. 

(2)  In  the  event  that  the  contractor  shall  not  be  in 
default  under  this  contract  at  the  date  of  its  termi- 
nation as  aforesaid,  the  contractor  shall  be  entitled 
to  receive  the  purchase  price  of  articles,  which  shall  be 
completed  within  thirty  days  after  notice  of  termination 
of  this  contract,  upon  their  delivery  and  acceptance,  and 
in  addition  thereto  a  sum  equal  to  the  total  amount  of 
the  contractor's  actual  net  expenditures  and  actual  net 
outstanding  obligations  made  or  incurred  in  good  faith 
with  respect  to  the  additional  articles  of  delivery  of  which 
is  prevented  by  such  termination  of  this  contract.  The 
above  provision  of  this  paragraph  (2)  shall  apply  in  so 
far  as  practicable  in  the  event  that  continued  performance 
by  the  contractor  of  this  contract  is  finally  prevented  by 
acts  of  war,  riots,  incendiarism,  or  other  causes  beyond 
the  control  and  without  the  fault  of  the  contractor,  which 
may  be  directly  traceable  to  the  United  States  being  in 
a  state  of  war. 

The  market  vaaie  of  material  supplied  to  the  con- 
tractor or  paid  for  by  the  United  States,  and  remaining 
in  the  possession  of  the  contractor  upon  any  termination 
of  this  contract,  may  be  charged  against  the  contractor^ 
in  making  any  payments  after  such  termination. 
Materials,  etc.,      ARTICLE  IX.  The  contractor  agrees  not  to  create  or 

to  be  kept  unen-  ,  ,  TIT  i 

cumbered.  suffer  to  be  created  any  mortgage,  hen,  pledge,  attach- 
ment or  other  incumbrance  upon  any  of  the  component 
parts,  materials,  supplies  or  other  property  in  his  posses- 
sion which  it  is  herein  contemplated  shall  presently  or 
ultimately  be  paid  for  directly  or  indirectly  by  the  United 
States,  and  in  the  event  that  such  mortgage,  pledge,  lien, 
attachment  or  incumbrance  is  created,  the  contractor 
agrees  to  pay  and  discharge  the  same,  or  if  he  disputes 
the  validity  of  the  claim  out  of  which  such  incumbrance 
arises,  immediately  to  bond  the  same,  to  the  end  that  all 
such  property  shall  be  and  remain  at  all  times  free  and 
clear. 


43 

ARTICLE  X.  The  contractor  agrees  to  hold  and  save 
the  United  States,  and  all  persons  acting  under  them, 
harmless  from  and  against  all  liability  on  account  of  any  gjgjf  of 
patent  rights,  whether  granted  by  the  United  States  or 
any  foreign  country,  which  may  affect  the  articles  herein 
contracted  for,  or  their  manufacture,  or  the  performance 
of  this  contract  in  any  manner  whatsoever. 

ARTICLE  XI.  This  contract  shall  not,  nor  shall  any  asSgSSfe.  not 
right  to  receive  payment  or  any  other  interest  therein,  be 
transferred  or  assigned  by  the  contractor  to  any  persons, 
firms  or  corporations. 

The  contractor  shall,  unless  otherwise  directed  by  the 
contracting  officer,  insert  in  every  contract  made  for  in- 
creased facilities,  material,  supplies  and  the  like,  relating 
to  the  performance  of  this  contract,  a  provision  that  such 
contract  may  be  assigned  by  the  contractor,  and  that  such 
contract  relates  to  a  main  contract  between  the  con- 
tractor and  the  United  States. 

ARTICLE  XII.  No  laborer  or  mechanic  doing  any  part  Eight-hour  day. 
of  the  work  contemplated  by  this  contract,  in  the  employ 
of  the  contractor,  or  any  subcontractor  contracting  for 
any  part  of  said  work  contemplated,  shall  be  required  or 
be  permitted  to  work  more  than  eight  (8)  hours  in  any  one 
calendar  day  upon  such  work,  such  prohibition  being  in 
accordance  with  the  Act  approved  June  19,  1912,  limiting 
the  hours  of  daily  service  of  mechanics  and  laborers  on 
work  under  contracts  to  which  the  United  States  is  a 
party.  For  each  violation  of  the  above  requirement  a 
penalty  of  five  dollars  ($5.00)  shall  be  imposed  upon  the 
contractor  for  each  laborer  or  mechanic  for  every  calendar 
day  in  which  said  employee  is  required  or  permitted  to 
labor  more  than  eight  (8)  hours  upon  said  work,  and  all 
penalties  thus  imposed  shall  be  withheld  for  the  use  and 
benefit  of  the  United  States;  provided,  that  the  above  re- 
quirement shall  not  be  enforced  nor  shall  any  penalty  be 
exacted  in  case  such  violation  shall  occur  while  there  is 
in  effect  any  executive  order  suspending  the  provisions  of 
said  Act  approved  June  19, 1912,  or  waiving  the  provisions 
and  stipulations  thereof  with  respect  to  either  this  con- 
tract or  any  class  of  contracts  in  which  this  contract  shall 
be  included,  or  when  the  violation  was  due  to  any  extraor- 
dinary event  or  conditions  of  manufacture,  or  to  any  emer- 
gency caused  by  fire,  famine,  or  flood,  by  danger  to  life  or 
property,  or  by  other  extraordinary  events  or  conditions 
on  account  of  which,  by  subsequent  executive  order,  such 


44 

past  violation  shall  have  been  excused.  It  is  agreed  that 
the  contractor,  in  doing  any  part  of  the  work  contem- 
plated hy  this  contract,  and  any  subcontractor  contract- 
ing for  any  part  of  said  work,  shall  comply  with  the  pro- 
visions of  the  Naval  Appropriation  Act  approved  March 
4,  1917,  and  the  executive  order  of  the  President  of  the 
United  States  dated  March  24,  1917,  in  respect  to  the 
wages  of  persons  employed  upon  contracts  with  the 
United  States,  in  so  far  as  such  provisions  may  be  ap- 
plicable and  so  long  as  said  Act  approved  March  4,  1917, 
or  said  executive  order  dated  March  24,  1917,  shall  be 
in  force  and  effect. 

be?efltials  not  to  ARTICLE  XIII.  No  member  of,  or  delegate  to,  Congress 
or  Resident  Commissioner,  nor  any  person  belonging  to 
or  employed  in  the  military  service  of  the  United  States 
is,  or  shall  be  admitted  to  any  share  or  part  of  this  con- 
tract, or  to  any  benefit  that  may  arise  therefrom,  but  this 
Article  shall  not  apply  to  this  contract  so  far  as  it  may  be 
within  the  operation  or  exception  of  Section  116  of  the 
Act  of  Congress  approved  March  4,  1909  (35  Stats.,  1109). 

^NO  prison  la-  ARTICLE  XIV.  No  person  or  persons  shall  be  employed 
in  the  performance  of  this  contract  who  are  undergoing 
sentences  of  imprisonment  at  hard  labor  which  have  been 
imposed  by  the  courts  of  the  several  States,  Territories,  or 
municipalities  having  criminal  jurisdiction. 
Doubts  or  dis-  ARTICLE  XV.  Except  as  this  contract  shall  otherwise 

putes    to    be    re-  -,  T 

ferred.  provide,  any  doubts  or  disputes  which  may  arise  as  to  the 

meaning  of  anything  in  this  contract,  shall  be  referred  to 

the  _ ,  for  determination.     If,  however, 

the  contractor  shall  feel  aggrieved  at  any  decision  of  the 

upon  such  reference,  he  shall  have  the 

right  to  submit  the  same  to  the  Secretary  of , 

whose  decision  shall  be  final. 

Notice.  ARTICLE  XVI.  Notice   under   this   contract  shall   be 

deemed  to  have  been  sufficiently  given  to  and  received 
by  the  contractor  when  mailed  in  a  sealed,  post-paid 

wrapper  addressed  to 

dfiinmoL0"!  ARTICLE  XVII.  This  contract  may  be  executed  in  any 
officer !,racting  number  of  counterparts,  all  of  which  together  shall  con- 
stitute one  original  contract.  Wherever  the  term  "con- 
tracting officer"  is  used  in  this  contract  the  same  shall 
be  construed  to  mean  the  contracting  officer  executing 
this  agreement,  his  successor  or  successors,  his  duly 
authorized  agent  or  agents,  or  anyone  designated  by  the 


45 

,  from  time  to  time,  to  act  as  contract- 
ing officer  hereunder. 

IN  WITNESS  WHEREOF,  the  party  of  the  first  part  has 
caused  this  contract  to  be  executed  by  its  proper  officers 
thereunto  duly  authorized,  and  the  United  States  of 
America  has  caused  this  contract  to  be  executed  by  the 
undersigned  contracting  officer  thereunto  duly  author- 
ized. 

Witnesses :  Signatures : 


Contractor. 


___  Dept., , 

Contracting  Officer. 

(Executed  in  quintuplicate.) 


Annexed  hereto: 

Schedule  I. — Drawings  and  specifications. 


14  DAY  USE 

RETURN  TO  DESK  FROM  WHICH  BORROWED 

LOAN  DEPT. 

This  book  is  due  on  the  last  date  stamped  below, 
or  on  the  date  to  which  renewed.  Renewals  only: 

Tel.  No.  642-3405 

Renewals  may  be  made  4  days  prior  to  date  due. 
Renewed  books  are  subject  to  immediate  recall. 


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